The Bank of Ghana (BoG) posts GH₵55.12 billion negative equity in 2022 caused by the Domestic Exchange Programme (DDEP) and revaluation losses on its foreign assets and liabilities due to exchange rate depreciation.
BoG posts GH¢60.86bn losses
The negative equity resulted from losses during the year of GH¢60.86 billion compared to GH¢1.25 billion profit in 2021.
According to the regulator, its non-marketable holdings of Government of Ghana instruments including long-term stocks, a COVID-19 Bond and overdraft suffered 50% haircut as part of government’s debt restructuring.
GH₵48.40bn lost to DDEP
BoG’s 2022 Annual Report and Financial Statements disclosed that the Bank’s other claims (holdings of marketable instruments) were exchanged under similar terms as other financial institutions under the DDEP, leading to an impairment of GH₵48.40 billion in 2022.
GH¢5.27bn lost to cedi depreciation
The Statement added that BoG posts revaluation losses on its foreign assets and liabilities due to exchange rate depreciation resulted in net exchange loss of GH¢5.27 billion as against a gain of GH¢1.07 billion in 2021.
GH¢6.12bn lost to impairment of loans and advances
According to the statement, impairment of loans and advances granted to Quasi-government and financial institutions amounting to GH¢6.12 billion compared to GH¢0.19 billion 2021.
The 2022 Annual Report and Financial Statements signed by Dr Ernest Addison, Governor of BoG said the negative equity position was not the result of sub-optimal policy decisions but emanated from the restructuring of government debt and adverse market movements.
He pointed out that this negative equity does not imply loss of policy effectiveness, and is expected to correct as the economy recovers and foreign reserves build up
He assured that BoG would implement measures, including government’s support for recapitalisation to ensure that equity was restored to positive path by the end of 2027.
Dr Addison announced that the Central Bank would implement retention of profits policy to rebuild capital, and optimise its investment portfolio and operate cost mix to bolster efficiency.
Again, he said the Bank would have an assessment of the potential need for recapitalisation support by the government in the medium-term.
COVID-19, Russia-Ukraine war, soaring energy and food prices, higher interest rates, a strong dollar and a global slowdown negatively affected the economy.
Consequently, economic growth slowed to 3.1% in 2022, from 5.1% in 2021.
With rising inflation, loss of reserves, slowdown in growth, fiscal policy implementation inertia, and a rapidly depreciating currency, the Government took a decision to approach the International Monetary Fund (IMF) for support.
Subsequently, a deal was reached with the IMF on the key elements of a $3 billion three year Extended Credit Facility by mid-December 2022, to restore macroeconomic stability and debt sustainability.
Dr Addison explained that the Central Bank offered regulatory reliefs to institutions that voluntarily participated in the DDEP to safeguard stability of the financial sector.
Those reliefs included a reduction in the Capital Adequacy Ratio to 10% , from 13%, a reduction in the Common Equity Tier One capital ratio to 5.5%, from 6.5%, and an increase in the maximum Tier Two capital ratio to 3%, from 2% of total risk-weighted assets.
Despite the loss, the Statement showed that total assets of the banking industry grew by 22.9% to GH₵220.90 billion, mainly funded by growth in deposits.
In addition, asset quality improved slightly to 15.1% in 2022, reflecting a strong pickup in credit growth, which outpaced the growth in the non-performing loan stock.
The Statement said BoG strengthened regulation and supervision of banks and enhanced its Online Regulatory Analytic Surveillance System.