Depositors switching to foreign currency accounts – Banking sector report …more cedi depreciation expected

The Banking Sector Report for September 2019 published by the Bank of Ghana has revealed that depositors are developing appetite for converting domestic deposits to foreign currency in a bid to maintain or increase the value of their monies, a move that can spiral depreciation of the cedi.

The report shows that the domestic currency component of deposits recorded a slower growth of 9.1 percent to GH¢54.8 billion in August 2019, 20 percentage points lower than the previous year’s growth; whereas, foreign currency deposits grew by 21.2 percent to record GH¢21.2 billion during the review period compared to a growth of 18.6 percent in the previous year.

This, Banking Consultant, Dr. Richmond Atuahene said, shows more depositors do not have confidence in the local currency, hence, the conversion of their monies to a more stable foreign currency.

“It is an indicator that people are not even interested in holding the cedi and are now switching to a stable currency because they think it is safer. This doesn’t show the robustness of the banking sector that people are talking about. People don’t have confidence in the cedi and that is why the report shows they are converting their monies to foreign currency,” he told B&FT in an interview.

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The cedi, according to the Institute of Social, Statistics and Economic Research (ISSER), has depreciated by more than 10 percent by the first half of the year. Dr. Atuahene says the conversion of the cedi to foreign currency – especially the dollar, to a large extent, is to blame for the recent depreciation of the cedi, and will become worse if depositors continue to lose confidence in the local currency.

Besides the conversion of domestic deposits to foreign currency, the BoG report further showed a decline in overall bank deposits. Deposits declined by 12.2 percent to GH¢76 billion in August 2019 compared to the 26.2 percent rate observed a year earlier.

This, the report says, was largely due to significant reduction of the Consolidated Bank Ghana’s (CBG) deposits due to settlements it made to customers as part of the reforms in the banking sector.

It is, therefore, a wake-up call for managers of the banks to put in place strategies that will restore trust in people and encourage them to save with the bank as the report has clearly showed the weakest link of the chain.

Dr. Atuahene commented on this by saying: “It shows the CBG’s deposits were not monies mobilized by the bank. Rather, it was monies from the microfinance sector that were given to them to keep. So now that they have disbursed those monies, it has reflected the real position of the bank.”

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