Graphic Business News

BoG pledges regulatory overhaul • To boost public confidence in non-bank institutions

By: By Maxwell Adombila & Kester Korankye
• Dr Ernest Addison, Governor, BoG
• Dr Ernest Addison, Governor, BoG

THE Governor of the Bank of Ghana (BoG), Dr Ernest Addison, has assured the general public that the central bank will take the needed reforms to help bring sanity and lasting solutions to the challenges facing non-bank financial institutions (NBFIs) in the country.

Dr Addison said at a news conference last Monday that the reforms were aimed at protecting depositors and boosting the public’s confidence in the operations of rural and community banks (RCBs), microfinance and savings and loans companies, among others.

The governor gave the assurance at the BoG’s 83rd Monetary Policy Committee (MPC) meeting, where he announced the committee’s decision to stay the central bank’s benchmark rate, the policy rate, at 17 per cent.

BoG regrets policeman’s brutality
The governor’s assurance on holistic reforms in the NBFI sector was in response to a question on what measures the BoG was taking to address the loopholes in that segment of the financial sector, especially on the back of a policeman’s brutal assault on a customer of the Midland Savings and Loans Company.

Dr Addison observed that although the policeman’s action was regrettable, it was the fallout of the general challenges facing NBFIs, which the BoG had now resolved to address holistically.

He said while the BoG was working on regulatory reforms, the government was also looking at the deposit insurance scheme as a primary protection to customers who might fall victim to distressed institutions.

The scheme is to be administered by the yet-to-be operationalised Ghana Deposit Insurance Corporation.   

 “We are looking at a reform for that segment of institutions that will strengthen and help them to operate more efficiently in order to protect depositors. Boosting deposit confidence is  currently the preoccupation of the central bank, he said.  

“The government is also prepared to find the necessary resources to enable us to make those reforms,” he added.

In April this year, the International Monetary Fund (IMF), which is helping the government to stabilise the economy through the Extended Credit Facility (ECF) programme, said the government had set aside public resources for a one-off financial sector clean-up, estimated to cost the equivalence of GH¢2.4 billion.

Although neither the fund nor the government has readily explained the rudiments of the clean-up exercise, indications are that the funds will be used to fund far-reaching reforms and prop up distressed financial institutions.

In March this year, the BoG said about 272 NBFIs were either distressed or had folded up.

The situation affected some 705,396 depositors, with deposits totalling GH¢740.5 million.

Reason for policy rate stay
Dr Addison had explained that the decision to stay the policy rate at 17 per cent was influenced by the recent pick-up in inflation in May and June.

The rise in inflation in the two months was on the back of price pressures from earlier increases in prices of petroleum products. 

“In assessing the balance of risks, the committee was of the view that although inflation had moved upward in the recent readings, this came mainly from the effects of increases in administered prices of petroleum and transportation costs.

“The committee viewed that second-round effects from these relative price changes would not be significant enough to alter the inflation trajectory over the medium term. This would require continued fiscal consolidation together with tight monetary policy to keep inflation within the target band,” he said.

This is the first time this year the BoG has stayed its policy rate after jacking it down from 23.5 per cent in January last year to 17 per cent in May this year.