Banks’ deposits rebound after sector reforms

The country’s banking sector seems to be showing signs of recovery as deposits have increased for two consecutive months following a drop from the latter part of 2018, the Summary of Economic and Financial Data has revealed.

The data, which was published by the Bank of Ghana, show that banks’ total deposits increased to GH¢71.9billion in February 2019 from GH¢70.5billion the previous month – translating into a 20 percent increment, the highest since October last year when it increased by 20.8 percent.

Compared to the same period last year (February 2018), banks’ deposits were GH¢59.9billion – which is 7.4 percent lower growth than recorded this time around.

Banks’ deposits as of the end of 2018 was GH¢68.3billion – a dip in annual growth rate to 17.4 percent from the 18.4 percent recorded in November. This some financial analysts blamed on what they called a ‘radical’ approach by the central bank to clean up the banking sector, which led to the revocation of five banks’ licences – triggering many panic-withdrawals across the country.

The 2019 rebound in deposits growth, a Professor of Economics at the University of Ghana – Prof. Peter Quartey said, can be rightly attributed to the banking sector reforms undertaken by the Bank of Ghana last year.

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“Given the reform that banks have to recapitalise; given the reform that a director of a bank’s board has to be screened; given the reform on how loans should be advanced and several directives from the central bank, we see depositors building confidence in the existing banking institutions.

“Some have even moved their funds from microfinance and other financial institutions to formalised banking institutions. So yes, confidence has increased; but it has increased more in the banking sector than other financial institutions, especially microfinance institutions,” he said in an interview with the B&FT.

Following the successful clean-up of the banking sector, albeit it having consequences on the economy – namely job-losses, panic-withdrawals, and ultimately a GH¢12billion cost to taxpayers for the exercise – the central bank has said its next stop is the microfinance sector by end of June this year.

The clean-up in the sector, Governor of the Bank of Ghana Dr. Ernest Addison said, will cost the economy some GH¢700million.

“We have already announced that it will be the next phase, and we will be focusing on ways to see that depositors in that sector of the market are taken care of. We are working with the Ministry of Finance to raise the necessary resources to do that. I cannot tell you the exact date because it is yet to be decided, but the commitment is there.

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“I can assure you that we are in the second quarter, and hopefully within this quarter we will be able to bring that issue to a conclusion because we are close to obtaining the resources we need to deal with microfinance institutions. The preliminary estimate that we have for microfinance institutions is just GH¢700million,” Dr. Addison said.

Data source: Bank of Ghana

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