Banks withstand COVID-19 shocks, SDIs hit hard – BoG Report

A new report by the Bank of Ghana has established that even though banks have been resilient to shocks amidst the Covid-19 pandemic, the same cannot be said for Specialized Deposit-Taking Institutions such as Savings and Loans Companies and Microfinance firms.

The report, which was conducted by the central bank for the first quarter of this year, that’s from January to May, also showed that Ghana’s financial sector saw an increase in cash withdrawals largely due to the pandemic and its attendant impact.

“The banking sector’s performance remains strong, but there are emerging signs of the impact of COVID-19 on the industry’s performance as evidenced by the 2020 first quarter trend”.

The report, first pointed out that the COVID-19 containment measures such as the lockdowns, border closures, and social distancing that were announced by government disrupted and dampened economic activities.

According to the Bank of Ghana, these measures posed two main risks to Ghana’s financial sector.

Firstly, it created a liquidity risk where people increased withdrawals of their monies as against deposits. Secondly, individuals and businesses that have taken loans were unable to pay back leading to high default rates.

In all these, the resilience of the banking sector helped it to withstand the shocks emanating from the pandemic. This was due to support from strong capital buffers and a high liquidity position in the banking sector.

The same cannot be said for Specialized Deposit-Taking institutions such as savings and loans companies and microfinance companies.

The report showed that the robustness of the Specialized Deposit-Taking Institutions sector was negatively affected by the adverse impact from the COVID-19 spread. For instance, the Specialized Deposit-Taking Institutions sector showed constrained liquidity conditions and capital shortfalls.

A liquidity stress test conducted by the Bank of Ghana indicated a decrease in the survival rate of the Specialized Deposit-Taking Institution sector over time. By this, most microfinance companies and savings and loans companies could not meet all the demands for withdrawal by their customers during the first three months of the period of the COVID-19 pandemic.

Meanwhile, the Bank of Ghana has assured that it will continue to monitor developments in the banking sector and introduce additional policy measures as and when they become necessary to protect depositors’ funds.