The Bank of Ghana has taken steps to push banks and other Specialised Deposit-Taking Institutions (SDIs) to make enough credit available to critical sectors of the economy, following the coronavirus pandemic which is expected to significantly affect growth.

The central bank, last week, announced a series of measures that included relaxation of some key criteria, including reduction of the Primary Reserve Requirement from 10 percent to 8 percent to provide more liquidity to banks and SDIs; and reduction of the Capital Conservation Buffer (CCB) for banks from 3 percent to 1.5 percent.

Other measures include the reduction of provisions for loans in the ‘Other Loans Especially Mentioned’ (OLEM) category from 10 percent to 5 percent for all banks and SDIs, as a policy response to loans that may experience difficulty in repayments due to slowdown in economic activity; and loan repayments that are past due for Microfinance Institutions for up to 30 days shall be considered as ‘Current’, as is the case for all other SDIs.

Despite the introduction of these measures to boost liquidity, banks tend to be slow in reacting or leveraging the extra cash in sectors that wouldn’t directly impact the struggling businesses that need funds the most.

This has led the BoG to issue new directives as to how the extra funds from these relaxed rules should be applied to benefit the intended target: the private sector.

The new guidelines states that banks and SDIs are to refrain from declaring and paying dividends or making other distributions to shareholders for the 2019 financial year – unless the Bank of Ghana is satisfied that the institution meets the regular prudential requirements and is not relying on the additional liquidity released by the policy measures enumerated above to pay shareholders.

It added that all banks and SDIs shall, therefore, seek the Bank of Ghana’s prior approval in writing before the declaration and payment of dividends.

Again, the directive says banks and SDIs are to desist from utilising the released liquidity based on the above policy interventions to purchase government of Ghana and Bank of Ghana Securities.

To ensure full compliance with these directives, the central banks said it will strengthen its monitoring mechanisms and apply sanctions to any bank or SDI that does otherwise.

Besides making enough credit available with these directives, it is expected that they (the directives) will further lead to affordable credit to the private sector, as the high cost of credit has become a major headache for businesses in the country.

Data from the Bank of Ghana indicate that average lending rates from banks in the country have never gone below the region of 23 percent in the past one year.

Banks have argued over the years on the lines of high policy rates, high non-performing loans, high operational cost, among others, for keeping lending rates high. Justified though their case was, the situation has been eased by the central bank’s current intervention – hence the need for them to consider reducing lending rates to support the private sector in these distressing times.