Strenuous efforts were made by key stakeholders in the financial community to address the challenges saddled with the sector in 2022 and 2023. These key stakeholders include, but not limited to universal banks; savings and loans companies; investment banks; rural and community banks; microfinance institutions; insurance companies; brokerage firms; central banks (in the case of Ghana, the Bank of Ghana (BoG)); Securities and Exchange Commissions (SECs); and Ministries of Finance (MoF) in Ghana and other economies across the globe.
Though the tireless efforts of the key stakeholders outlined above are worth-commending, they (these efforts) were not enough to address all the challenges confronted with the sector in the prior and preceding years, that is, during 2022 and 2023 financial years. This is not peculiar to the Ghanaian economy; it remains global challenge that consistently seeks holistic approach to remedy the situation. In view of the foregoing, it suffices to state, all banking and finance challenges; and economic issues from 2023 would remain of paramount interest to policymakers throughout 2024; and in the medium-term.
The sub-prime financial challenges of 2007 through 2010 impelled shift in paradigm from the conventional structure and functionality of the global financial sector and its related systems. To illustrate, most advanced economies had to implement ‘low for long’ monetary policy over twelve- or more-year period in strategic response; and towards mitigation of the crisis reined in the global economy by the sub-prime market challenges.
Similarly, most organisations were compelled to review their existing business models; while consumers had to reassess and readjust their behaviours to minimise shocks; and assure resilience and sustainability of the global financial system. Undoubtedly, the low for long monetary policy approach; revised business models and consumer behaviour readjustments led to the introduction of novel conditions to the global financial sector and economy; and the key actors are envisaged to evolve in reaction to these novel conditions in 2024 and medium-term.
Inflation Targeting
In advanced economies such as the United States, ever-changing dynamics in the global business environment would necessitate review of traditional method of tackling inflation head-on since some of these orthodox approaches appear to have minimal positive effect on economic outcomes in recent periods. In effect, implementation of the make-up policy and average inflation targeting (AIT) would dominate novel monetary policy framework for inflationary control.
Under the make-up policy approach, advanced countries would leverage on their robust economic fundamentals to efficiently make up for past misses in inflation targets in a systematic manner to eventually restore their respective economies to pre-downturn or pre-pandemic growth paths. Uniqueness of the make-up policy resides in the ability to cause temporary decline in the level of inflation; and sustainability of desired inflationary level through consistent monitoring of the key inflation triggers.
The average inflation targeting approach would be utilised invariably by advanced economies to ensure average rate of inflation over given number of fiscal periods remains equal to the target inflation rate. The implication is, above-target inflation during one period would require belowtarget inflation in subsequent period or periods, vice versa; and this would ensure stability in the path of price level. Further, average inflation targeting would urge central banks to allow inflation to run temporarily above its target, especially when the economy is emerging from recession; or emerging from the shackles of major Tsunamis and pandemic outbreak such as COVID-19; or emerging from any other major downturn.
Interest Rate Targeting
In Ghana and many other developing and emerging economies across the globe, policymakers would have to grapple with higher inflation and volatile interest rates, though some of these strategic initiatives may be intentional to moderate other pressing economic challenges. However, in most advanced economies, central banks would resolve to hold interest rates at near zero percent for several years in response to economic fluctuations; and ensure effective mitigation of inherent volatilities.
Conversely, central banks in developing economies such as Ghana would ensure dramatic increase in interest rates to have ‘firm grip’ over inflation. The dramatic increase would not be intentional, but economically-induced measure to tame or control inflation. Effective prediction of strongly anchored inflation expectations in 2024 and the medium-term may not be associated with high level of precision, owing to economic uncertainties; and rapid evolution of the domestic and global financial sectors.
Quantitative Easing
Post-COVID-19 activities and the government of Ghana’s debt restructuring programme forced the Bank of Ghana to incur significant loss in excess of GHȼ66 billion in recent financial period. This ‘negative’ balance sheet effect was received with mixed reactions by analysts and social commentators in the country. However, the narratives from the Ghanaian perspective may not be too distinct for the following economies with sovereign debt defaults in 2022 and 2023: Mali, Russia, Sri Lanka, Belarus, El Salvador, Ukraine, Mozambique and Argentina.
Nonetheless, expectations of the central banks of these economies (including Ghana) would be to return to more normal balance sheet levels. To achieve this objective, the central banks would strive towards reversing quantitative easing. That is, deliberate efforts would be made to decrease money supply through the sale of government securities in the financial markets.
To attract buyers, the government would offer comparatively higher interest rate to decrease the volume and value of money in circulation within the financial system; and in the broader economy. This mitigation measure is likely to modify the composition of the financial markets, financial system and financial sector, given the eventual significant increase in the national reserves on their respective balance sheets.
Central Banks’ Interventions
During financial years 2009 and 2010, many central banks were impelled to intervene massively in the financial markets. However, in 2020, the intervention was stronger as most central banks had to intervene to counter widespread liquidity challenges that were taking a toll on prices of assets and provision of credits. Some analysts described the breadth and size of these interventions in the global financial market as unprecedented. In addition to the foregoing, certain central banks including the Bank of Ghana had cause to intervene in other specific situations.
The Bank of Ghana had to intervene during the implementation of the government’s debt restructuring programme by addressing pertinent financial issues. In the same vein, interventions of the central banks of other economies listed in the preceding section were compellingly sought in one form or the other to assure economic rigidity and stability. Similarly, the Bank of England had to respond to issues related to the government’s bond market in the United Kingdom (UK) during October 2022.
For many developing economies, such interventions in the financial market may be inevitable in the medium-term to mitigate foreseen and unforeseen shortfalls in the financial system; and ensure resilience and stability of the economy through positive and productive economic stimulation. The caveat, however, would be possible expansion in the balance sheets of the implied central banks; and the resultant ‘required’ mitigating monetary policy measures.
Implementation of contractionary monetary policy may be quite daunting when the central banks’ balance sheets are expanded by interventions in the financial markets. In the case of Ghana, additional financial losses from the central bank’s balance sheet position in 2024 may have political interpretation and coloration; and render it more difficult for the central bank to assume additional financial risk. In essence, central banks’ strong interventions in financial markets in 2024 may be constrained by monetary policy and political factors.
Competitiveness of Non-Bank Financial Institutions
Non-bank financial institutions including Fintech companies and other financial market activities have increased in scope, volume and value in the last decade. Analysts believe banks have lost significant market share to these financial market players (that is, non-bank financial institutions and other financial market activities) due to their innovativeness and rapid response to the financial needs of consumers.
Though this change in financial market trend was in place, it was expedited when solutions were sought for the global financial crisis in 2009 and 2010. Many banks became less competitive when their regulatory capital and liquidity requirements were increased in response to the global financial crisis; and this provided non-banks and other actors in the financial market the necessary competitive urge and drive. All else held constant, the market share of banks would decrease as these two variables or actors gain prominence in the financial space.
To increase their competitiveness in 2024 and beyond, banks are envisaged to readily access wholesale funds at very cheaper interest rates. This would ensure banks have major funding advantage that hitherto did not exist. In 2024, banks would strive to maintain their dominance in the domestic and global financial space. However, non-bank financial institutions and other financial market actors would strive for greater recognition through consistent innovation; and competitive offerings to consumers in the financial market.
The end-result of this successful initiative would be further increase in the market share of these non-banks and other financial market actors. It is worth-noting, the financial intermediation role of non-bank institutions witnessed significant growth in the last decade owing in part to the availability of wholesale funds at very low rates (Elliott, 2023). This notwithstanding, banks would strive to reverse the trend, maintain and increase their financial market share by partnering Fintech companies to provide more practical banking solutions to existing customers and prospects.
Scenario Analysis and Due Diligence
The perceived transitions and modifications within the financial sector in 2024 and the mediumterm would not be mutually exclusive; these modifications are envisaged to be interrelated. Strategic and meaningful measurement of the consequential effects would be facilitated by scenario analysis. Use of possible scenarios would substitute for precision in prediction which is rare to achieve in the complex analysis of monetary policy and finance with broad spectrum.
Application of scenario analysis would allow for the analysis of plethora of potential outcomes; and allow analysts to tease-out comprehensive thought about each set of possible futures. The latter include thoughts about possible developments that would have to happen for the future occurrence to be recorded; knowledge about consequences that would necessarily occur simultaneously; and which of the identified variables can be described as mutually exclusive, amongst others (Elliott, 2023).
Due diligence would strongly be needed in 2024 to avert the likelihood of domestic and global financial market shocks since these have the potential to siphon liquidity for significant period; and render wholesale funding in the short-term more dangerous than ‘financially friendly.’ Further, it could render wholesale funding inaccessible. This scenario or situation would manifest if the economy witnesses higher and more volatile interest rates regime; and there are practically less assurances from central banks of possible interventions to ‘smoothen’ the wholesale markets, except in rare cases or extreme situations.
Financial Stability Risk Concerns
Policymakers would not be immune from the concerns related to financial stability risks that would emanate from the financial markets. Further, vivid attention would be paid to reports to be released by the Financial Stability Board; and reports that would be compiled and shared by various central banks and regulators across the globe. The overarching essence of these reports would be pivoted around the ability to provide useful information on fragilities and potential repricing of assets in the various markets.
Stakeholders would be keenly interested in information on financial assets that are generally considered as safe, but readily available in market structures that could be termed as unsafe. Notable examples include government bond markets in economies such as the United States of America and United Kingdom (Elliott, 2023); and the government bond markets in Ghana and other debt-distressed economies in recent years.
Another factor that would attract the attention of stakeholders is the likelihood of assets classified as risky plummeting further in value, thereby triggering ‘fire’ sales and insolvencies; or calling for strong interventions of central banks to address the financial impasse. The liquidity risks inherent in government-held securities such as bonds would attract the attention of international bodies such as the Financial Stability Board and national policymakers. For instance, in 2022, the government of Ghana was impelled to review and reduce its total financial commitments to bondholders as part of the national debt restructuring programme; investors experienced some challenges in trading in United States government bond; while investors in the Gilts market in the United Kingdom had to contend with very pressing challenges in the short-term (Elliott, 2023).
Market Making Capacity and Policy Impact
The factors would integrally underscore the imminence of these risks, namely potential decrease in market making by institutions in the banking sector; greater volatility in rates offered in the financial markets; and potential surge in government-issued securities with corresponding low market-making capacity of banks and other actors in the secondary financial markets.
Policymakers are more likely to devote time and resources towards addressing or tackling the issues identified and enumerated above. However, significance of the policy-impact on these issues may be undermined by political influence and constraints on policy choices. Further, policy-impact may be undermined by ineffective implementation of the identified or selected choices. The reverse of the ‘undermining’ factors would prove useful to the success of the policy-impact.
To illustrate, the Bank of Ghana maintains regulatory requirement of 16.60% for capital adequacy ratio for banks operating in Ghana. This ratio is in excess of the minimum capital adequacy ratio (8%) and capital conservation buffer (2.5%) requirements under Basel III (10.5%). The excess capital adequacy ratio requirements of 6.10% (16.60% – 10.50%) for banks operating in Ghana comparative to the Basel III standard requirements could potentially render market-making for safe assets more expensive for banks to conduct.
However, the Regulator in Ghana could argue that higher capital adequacy ratio is required to assure resilience and stability of banks in the face of unforeseen internal and external economic shocks. Resilience and stability of the banking and financial systems are needed to assure robustness of the economy; and firmly assure the country’s ability to withstand foreseen and unforeseen internal and external macroeconomic shocks.
In Ghana, the banking industry’s respective capital adequacy ratios for the first and second quarters of 2023 were 19.40% and 14.30%. Although the capital adequacy ratio for the second quarter (14.30%) remained lower than the Bank of Ghana’s regulatory requirement of 16.60%, it was comparatively higher than the cumulative Basel III requirements of 10.50%.
Implementation of Proactive and Innovative Measures
Banks operating in Ghana are envisaged to adopt and implement proactive and innovative measures that would affirm their financial ‘emancipation’ from the challenges of the recent government’s debt restructuring programme; and chart the path towards stronger performance in 2024 and beyond.
Similarly, regulators in other jurisdictions are expected to implement country-specific policies tailored to address socio-cultural and economic needs of their respective populations. The vibrancy of individual economies would create the enabling environment for global economic stimulation; and higher global economic output at the end of 2024 and beyond.
Prevailing economic conditions would impel review of prices of risk assets such as commercial real estates, equities, junk bonds; and other assets traded in illiquid and opaque markets. Investors and analysts would require sufficient marked-down to reflect significant impact of slower economic growth (if practically witnessed or observed); higher interest rates; and permanent changes in business conditions occasioned by debt restructuring (in the case of Ghana and other countries listed above to have experienced sovereign debt restructuring in 2022 and 2023) and COVID-19. Many firms affected by COVID-19, national debt restructuring programmes and other external economic shocks would require financial support in the form of government interventions to remain competitive in the business environment.
Financial institutions including universal banks would have to manage significant impairment losses arising from previous ‘unsuccessful’ investments in risk assets, including certain government-held securities. The intervention of central banks may be inevitable in the collective efforts to restructure the affected institutions; and stabilise the financial sector to prevent recessions or push the economies to the brink of near-recessions. Higher cost of borrowing would be welcomed by the business community with less loan application; and this could have negative implications for economic stimulation, the essential ‘ingredient’ for accelerated growth of global economies.
Though policymakers are characteristically risk-averse, happenings in the global economy in recent years would compel them to eschew any tendency to underestimate resilience of the markets in 2024 and beyond; and rather, pay particular attention to the valuation of assets in opaque and illiquid markets.
Individual countries would learn from the episodes of other economies; and proactively institute and implement policies and measures that would avoid recessions and near-recessions. The overarching idea would be to prevent any potential wave of business insolvencies; and encourage economic stimulation to assure stability in the activities of these countries. In essence, severe business insolvency challenges are not envisaged in 2024; managers of most economies across the globe would maintain and implement ‘red-alert’ policies that would prevent country-specific and global economic crisis; the emphasis would be on economic growth at the country and global levels.
Stated in different terms, policymakers would remain mindful of and introduce pragmatic policies that would control inflationary surge; and tame higher interest rates. The inference is, higher inflation and rising interest rate regimes could prove inimical to the fight against recession and near-recession in 2024; and the medium-term. Nonetheless, policymakers would be interested in injecting significant amount of fiscal and monetary aids to stimulate their respective economies; and circumvent challenges or crises that would potentially serve as impediments towards achieving desired economic outcomes; or desired economic growth rates and levels.
In Ghana, universal banks and other financial institutions that were ‘devastated’ by the government’s domestic debt exchange programme (DDEP) would count on establishment of the proposed Ghana Financial Stability Fund (GFSF) to remain ‘psychologically’ conditioned; and financially positioned to weather the storms of any foreseen and foreseen liquidity challenges in the immediate- and medium-term. The foregoing notwithstanding, it is worth-stating overall, the current capital position of many universal banks in Ghana remains strong; and this would minimise any potential risk of bank liquidity and solvency challenges in the immediate-term.
Most governments in advanced economies and some governments in Africa would continue to introduce broader policy actions on energy to reduce the costs of energy for consumers and business; while other government interventions such as the introduction of energy sector levy on specific products would be implemented to salvage the energy sector. These incentives and interventions would be stimulus packages intended primarily to stimulate economic activities; and assure financial soundness and rigidity of the economies.
Sovereign Debt Challenges
The foregoing positive economic actions notwithstanding, sovereign debt challenges may constitute an integral part of the global policy discussion. Countries with underlying structural weakness such as excessive debt burdens; commodity price shocks; rising interest rates; and local currency volatilities relative to major foreign currencies such as the United States Dollar, European Euro and British Pound Sterling may be on the verge of sovereign debt defaults. The situation may be exacerbated if their primary or major trading partners experience recessions to affect effective trading between these economies.
However, the global emerging market may expand in size and scope as more countries strive to meet the socio-economic needs of their respective populations; and transition to higher economic status, backed by impressive growth rates and levels. Thus, more countries are likely to transition and be counted in the ‘emerging economy’ category than ever; and these countries would justify their novel economic status with stronger performance.
Global Elections and Economic Impact
Presidential elections would be held in forty (40) countries in 2024. These countries represent 21% of the global countries; have estimated total population of 3.2 billion, equivalent to 41% of the global population; and maintain combined gross domestic product (GDP) of US$44.2 trillion, equivalent to 42% of global GDP (Curran & Crawford, 2023). Specifically, there would be elections in Ghana, South Africa, Mexico, India and United States of America, among other global economies.
In advanced economies such as the United States, extreme political polarisation would ignite and threaten temporary debt default, as the formal debt ceiling enshrined in the law is evoked. However, dialogue, debates and consensus between the Democrats and Republicans, the two leading parties in the United States politics, would be needed to address the political stalemate; and avoid debt defaults.
Countries in the ‘developing economy’ category such as Ghana that would be holding elections in 2024 would require strong fiscal discipline to control expenditure, especially when exception clauses allow governments to set-aside fiscal or debt ceiling rules under certain economically defined conditions. In 2024, fiscal discipline should not be elusive in the Ghanaian context; fiscal discipline would remain major desideratum towards ensuring effective debt containment; and efficient debt servicing in the post-election year and medium-term.
Economic Ramifications of Geopolitical Tensions
Sustainability of market activities in the global financial sector in 2024 may be stifled by geopolitical tensions between Russia and Ukraine; and the ‘cold war’ between the United States and China. As at 20th December, 2023, the Russia-Ukraine war had entered its 665th day. The cascading economic impact of this war on Russia, Ukraine and many countries around the world cannot be overemphasised. If the cold war between the United States and its Western allies on one hand; and China on the other is not resolved, the economic weights of these countries could have profound negative effect on macroeconomic performance of many countries across the globe.
More specifically, interest rates and inflation would surge while growth may be stymied in many countries. These economic setbacks would manifest when Russia backs China in the cold war against the United States and its allies, the West. The global financial challenges would be exacerbated by potential war in Taiwan in 2024; or in the medium-term.
Some immediate consequences of the enumerated conflicts are disruptions in global supply chains, which could affect the efficiency of many businesses; lead to the insolvency or closure of many businesses; create shortages in aggregate supply relative to aggregate demand; lead to surge in inflation; and stymy economic growth, among other significant economic consequences.
To stem the tide, policymakers would have to consider and implement mediating measures that would douse the flame of conflicts; and allow peace to prevail, so businesses could blossom and thrive for economies to achieve or exceed their growth targets.
Influence of BRICS Countries
The BRICS member countries, namely Brazil, Russia, India, China and South Africa would take bold step towards strengthening their financial ecosystem; and present an alternative to the global financial order. The financial initiatives of these countries would be attractive to developing and emerging economies with current limited interest in the external economic and political policies of North America and Europe.
The financial ecosystem of the BRICS countries would consolidate their position as economic counterweight to North America and Europe; and serve as resistant tool for any trade related actions, sanctions, influence; and potential threats from North America and Europe. The combined populations of the BRICS countries represent 40% of the global population; while their combined GDP is in excess of 25% of global GDP (France 24, 2023). Effective promotion of trade among the BRICS countries would impact on global dominance of North America and Europe; and introduce significant transformation to the traditional global financial order.
Regulation on Digital Assets
Digital assets would continue to exert their influence in the global financial system; and improve significantly in their contribution to the global financial market trading activities and values; and enhance their ratio of global GDP. Evidence suggests digital assets have come to stay in the financial system; what remains outstanding is effective policy to control the activities to ensure governments’ stakes in profits are duly earned.
Country-specific policies for regulating cryptocurrency would abound in 2024. Effective policies would be introduced by many countries to regulate trading in cryptocurrencies to reduce the incidence of cyber thefts and investment insecurity; while shoring up governments’ revenues from corporate and investment taxes on trading in digital assets.
As part of the mitigation measures and effective risk management strategies, emphasis would be placed on clear definition of custody of digital assets activities. The objective would be focused on addressing issues related to how to hold clients’ assets separately from those of service providers. Regulators would require greater transparency to increase universal acceptance of digital assets.
DeFi and Schools-of-Thought on Digital Assets
The pace of global development of decentralised finance (DeFi) would be accelerated while policymakers contemplate on how to ensure its effective regulation; or whether the sub-sector should be allowed to function as an integral part of the broader financial system. It is worth-noting, four schools-of-thought have emerged from the discourse among policymakers on cryptocurrencies or digital assets in recent years. These include pragmatists; supporters; dismissive; and opponents (Elliott, 2023).
The pragmatists who constitute fairly large group of policymakers across the globe do not ‘fancy’ cryptocurrencies. However, they do not shy away from the fact that these assets have come to stay; and would increasingly interplay with other assets in the traditional financial system. The pragmatists hold that policymakers in various economies should focus their attention on how to enact appropriate laws to ensure effective regulation and supervision to provide adequate protection for the global financial system and its users.
Nearly ten percent (10%) of policymakers are believed to lend their support to the acceptance and functionality of crypto assets within the broader financial system. The supporters perceive a parallel in the springing up of digital assets with proliferation of the Dot Coms in the late 1990s. In spite of the challenges such as fraud and high incidence of speculation, the supporters see a potential in digital assets; they believe these assets could cause massive economic transformation. In view of this, they oppose excessive heavy-handed regulatory measures; and favour the creation of appropriate guardrails for cryptocurrencies in the global financial market.
Another 10% of policymakers hold the belief that reversal of the speculative bubbles would compel digital assets to dissipate (on their own) over time. The dismissive do not support development of comprehensive regulation for cryptocurrencies since in their view, this would be ‘waste’ of time or policy exercise in futility; they believe human capital and financial resources would be utilised to provide digital assets an appearance of safety without providing real protection.
The opponents constitute fairly large number of policymakers with the view that digital assets do not present values; and yet, do not think these assets would fade away (over time) on their own. As remedial measures, the opponents propose heavy and restrictive regulation. They are of the firm opinion that this regulation should be couched in a way that would separate crypto assets from the traditional financial system.
What remains certain is non-dissipation of cryptocurrencies and their significant contribution to volumes and values of trade in the global financial market. In response to growth in digital assets trading, the Financial Action Task Force (FATF) would step up its global surveillance and regulatory mechanisms. In the medium- and long-term, efforts would be made by the Financial Actions Task Force to synthesise the policies of member countries; and emerge with common regulatory framework for implementation in all countries; albeit this framework would make provisions or introduce clauses that would permit certain modifications to suit the socio-economic needs and dynamics of each country.
Climate Risk Considerations
Investors would continue to ‘index’ their investment decisions to firms’ considerations for environmental and climate risks. Publicly-listed companies would be obliged to make environmental and climate-related disclosures to affirm their commitment to environmental conservation; and commitment towards frowning on funding business activities with high carbon emission rates. Investors would be joined by ‘influential’ consumers in the crusade against high carbon emissions and environmental pollution.
Policymakers would be impelled not to condone the devastating effect of the activities of organisations with high carbon emissions, though these companies would attempt to influence the decisions of policymakers to ensure sustenance of their operations to the detriment of larger segment of the population in terms of health hazards; and other harmful effects.
Climate risk remains relatively new phenomenon with limited available data in the field of finance, so efforts would be made to improve data gathering; and measurement of stress tests to assess risk level of issues emanating from climatic factors. The impact of climate risk is not short-term; it is characteristically long-term in nature, implying it would require the attention of policymakers in the medium- and long-term.
More financial institutions would be attracted and encouraged to access funds from multilateral institutions at very low or zero interest rate for onward lending to organisations that would be interested in green investments. As an incentive for companies willing to venture into green businesses, lending would be advanced by banks and other financial institutions at comparatively low interest rates. The conflicts in Russia and Ukraine; and the cold war between China and the United States would not serve as stumbling block in the quest of the global financial community for greener environment by increasing funding for activities with less climate risks.
Priorities for Financial Institutions
Financial institutions would strategise and prepare for economic volatility by prioritising humancentric task and finance technology. This initiative would lead to transformation in the financial sector; and create novel opportunities to improve profitability levels. Competing business priorities would demand costs-control efforts; multiple options for service delivery models; ongoing initiatives in technology; and investments in artificial intelligence, finance transformation and autonomous digital projects to accelerate institutional growth; while maintaining leaner institutions.
Behind every successful man, they say, there is ‘utility’ woman. To wit, for the success story of an industry in any given economy, it is not far-fetched to identify indefatigable regulatory body or regulatory bodies. The inference is, behind the resilience and stronger performance of the Ghanaian banking industry in post-COVID-19; and after the government of Ghana’s debt restructuring programme, one could ably identify the Bank of Ghana whose penchant for robust economy, characterised by vibrant financial sector, ensures the industry’s strategies and initiatives are anchored with implementable policies.
Confidence and Trust in the Financial System
The banking and financial system would continue to remain the heartbeat of global economies in 2024 and beyond. The inference is global economies would thrive on effective functioning of their respective banking and financial systems. It would therefore be imperative for policymakers in each economy to ensure effective functioning; and sustainability of their country’s banking and financial system.
Countries that experienced strong economic challenges in 2022 and 2023 would draw on their policy acumen and ingenuity to restore public confidence in their banking and financial systems in 2024 and the medium-term. To this end, moderate cost of capital would be a necessity in the regulated banking industry and financial sector in each economy.
Further, availability of very low cost of capital would serve as incentive for arbitrage opportunities for traders in the financial market who would be levered up many times to generate strong fee and profit growth; while they transfer long-term risks to third parties. Conversely, high cost of capital would serve as disincentive to attracting businesses, households and individuals to borrow towards economic stimulation, recovery and growth.
Systemically important institutions in the global banking and financial sector would strive not to maintain high concentrated risk on their books; they would ensure significant improvement in their governance structures and operations. In essence, banks and other financial sector institutions would be more pragmatic in their approach to environmental, social and governance (ESG) principles and applications.
Sustainability in the financing or equity culture through securitisation, creative use of derivatives and financial innovation would be prioritised by banks and other actors in the financial sector. Further, banks and other financial institutions would strive to strategically maintain winning business models. That is, either the “credit model” or “capital markets model” or both would dominate transactions and other activities in the financial sector, depending on the investment exploits and returns.
In most developing and emerging economies, implementation of the credit model would be focused on lending to small- and medium-sized enterprises (SMEs); households and individuals with strong or good credit rating, but limited opportunity to raise money in the capital markets. This would increase the probability of loan repayments; and decrease the rate of non-performing loans (NPLs). However, government interventions would ensure extension of financial support to micro businesses.
Government interventions would ensure deposits are guaranteed to halt runs on banks and other institutions in the financial sector. Further, banks would not be oblivious of the need to maintain strong balance sheets by removing toxic assets; and maintaining stable financial system. The implication is hold-to-maturity values might be better than prevailing marked-to-market values of illiquid toxic assets.
More importantly, banks and other institutions would remain sound and resist potential vulnerabilities inherent in the broader financial system. Manifestation of these qualities would be exemplified in strong performance of key indicators such as asset quality, capital adequacy ratio (CAR), return on equity (ROE), liquidity, non-performing loans (NPLs) and sensitivity to market risk, amongst others. Soundness of these indicators would be positively linked to significant improvement in the performance of the sector’s profitability and balance sheets; and this would be indicative of a sector that is characteristically resilient and stable, with the capacity to absorb shocks; while deepening financial intermediation.
The writer wishes to acknowledge Mr. Daniel Sackey for his illustrious career as Banker; former Managing Director (MD) of Ecobank, Ghana; former Vice President of the Ghana Association of Banks (GAB); and former Member of the Governing Council and General Assembly of GAB.
Finally, the writer would like to commend the outgoing Executives of the Governing Council of the Ghana Association of Banks; and acknowledge the newly-elected Executives. They include Mr. Kofi Adomakoh, President and Managing Director of GCB Bank; Mr. Hakim Ouzzani, Vice President and Managing Director of Société Générale, Ghana; and Mr. Henry Chinedu Onwuzurigbo, Treasurer and Managing Director of Zenith Bank, Ghana.
It is hoped the stewardship of the new Executives would build imminently on exploits of the previous Administration; propel the banking industry and broader financial sector to higher echelons; and contribute meaningfully towards robustness and sustained growth of the Ghanaian economy.
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