The Bank of Ghana recorded a loss of ¢60.8 billion in 2022, its Annual Report and Financial Statements have revealed. 

The Central Bank’s record loss is coming after it posted a ¢1.2 billion profit in 2021.

According to the Annual Report and Financial Statements, the loss is attributed to a decline in the Group’s net worth position due to the impact of the Domestic Debt Exchange Programme (DDEP) and the impairment of some assets.

Again, its total liabilities and subsidiaries exceeded its total assets by ¢54.52 billion.

In 2021,  the Central Bank recorded a surplus of ¢5.72 billion. 

Reasons behind loss position

This was due to the impairment of the Government securities holdings of ¢48.45 billion, the impairment of loans and advances granted to quasi-government and financial institutions amounting to ¢6.12 billion and the depreciation of the local currency resulting in a net exchange loss of ¢5.27 billion.

It was occasioned by the Government Domestic Debt Exchange Programme.

Loss impact on operations

According to the BoG, its Board of Directors and Management assessed the policy solvency implications arising out of the negative net worth position and the group’s ability to continue to generate enough income to cover its monetary policy operations and other operational costs.

In the view of the directors, the Central Bank will continue to operate on a going-concern basis due to a variety of factors underpinned by expectations of an improved macroeconomic situation and policy actions specifically targeted at improving its balance sheet.

Steps taken to recover from loss

In its Annual Report, the Central Bank, outlined these measures which it believed would help it recovery. These include:

• Retention of profits to help rebuild capital until equity firmly returns to positive region.
  
•  Refraining from monetary financing of the Government of Ghana’s budget. In this respect, action has already been taken with a Memorandum of Understanding on zero financing of the budget signed between the Bank of Ghana and the Ministry of Finance on 26 April, 2023;
  
•  Taking immediate steps to optimis the Bank of Ghana’s investment portfolio and operating cost mix to bolster efficiency and profits; and

• Assessing the potential need for recapitalisation support by the government in the medium-to-long term

It furthered that the Board of Directors and Management are of the view that  “continued efforts at restoring macroeconomic stability and debt sustainability in addition to long-term efforts at building reserves, provide enough basis for continued operational policy efficiency existence for the foreseeable future”.

Impact of DDEP on BoG and banking industry

All 23 banks signed onto the government’s DDEP by the settlement date of February 21, 2023.

The Central Bank conducted stress tests on banks, which showed elevated risk exposures of the DDEP on banks’ solvency, liquidity, and profitability. Thus, to manage the potential impact of the debt exchange and preserve financial stability, it announced some policy and regulatory reliefs for Banks that fully participated in the DDEP.

They include:

1. Reduction of the Cash Reserve Ratio (CRR) from 13% to 12% on foreign currency deposits to be held in foreign currency;
   
2. Reduction of the Capital Conservation Buffer from 3% to zero, effectively reducing the minimum Capital Adequacy Ratio (CAR) from 13% to 10%, intended to provide capital relief to banks after the implementation of the Debt Exchange;

The Central Bank added that it is fully equipped to provide liquidity support to banks and banks can access its Emergency Liquidity Assistance (ELA) Funds using the new bonds as collateral. 

It also enhanced its supervisory surveillance systems with banks.

It continued that banks are required to report more frequently daily submissions of balance sheet as well as liquidity reports including interbank market activities and cost of financing.

Again, additional reporting requirements have been developed for banks to report on the performance of the new bonds. The enhanced monitoring mechanism is to ensure timely supervisory intervention, if needed.

These reliefs, the Central Bank, said are designed to minimise the potential impact of the DDEP financial sector and to preserve financial stability.

Gold purchase programme

The Bank of Ghana commenced the Domestic Gold Purchase (DGP) programme and a gold for reserve programme in June 2021, with the objective of increasing its foreign reserves.

The Central Bank did this by purchasing refined gold from certified domestic gold mining firms using local currency. The refined gold is then shipped to the Bank’s offshore gold custodians, and it becomes part of the Bank’s reserves.

The Bank of Ghana maintained that these reliefs are designed to minimise the potential impact of the domestic debt exchange on the financial sector and to preserve financial stability.