Ghana's banking sector may be headed for another round of recapitalization in 2025, according to Dr. John Kwakye, Economist and Director of Research at the Institute of Economic Affairs (IEA). This forecast comes on the heels of the appointment of Dr. Johnson Asiama as the new governor of the Bank of Ghana.
The banking sector is still reeling from the impact of the Domestic Debt Exchange Programme (DDEP), which has weakened the balance sheets of banks and led to an increase in non-performing loans (NPLs). Dr. Kwakye warned that the sector remains under pressure, with the rise in NPLs posing a significant challenge.
"The banking sector is coming under stress again due to the DDEP, which has affected their balance sheets. Non-performing loans are on the rise, and it looks like another round of recapitalization may be necessary," Dr. Kwakye said in an interview.
The Bank of Ghana (BoG) has already approved recapitalization plans for undercapitalized banks, requiring them to inject at least one-third of the necessary capital annually over a three-year period ending in 2025. This phased approach aims to strengthen the industry and restore stability.
In addition to the recapitalization plans, the BoG has introduced stricter penalties for banks that fail to meet minimum capital requirements. This move signals the central bank's determination to safeguard financial stability.
Beyond the banking sector, Dr. Kwakye also expressed concerns about the country's economic outlook. He noted that inflation remains high, stuck in the 20s, and the exchange rate is depreciating rapidly.
"We need to find a new approach to address the problem of inflation, beyond the narrow inflation-targeting framework. The exchange rate is depreciating fast, and we need to take decisive action to stabilize it," Dr. Kwakye emphasized.
The economist's concerns about the economy are timely, given the challenges facing the country. As Ghana navigates these challenges, it is essential to develop new economic strategies that prioritize stability and growth.
The potential recapitalization exercise in 2025 will likely be a significant focus for the banking sector. As the sector prepares for this exercise, it is crucial to address the underlying challenges, including the rise in NPLs and the impact of the DDEP.
By taking proactive measures to strengthen the banking sector, Ghana can mitigate the risks associated with the DDEP and ensure a more stable financial system.
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