These are measures Bank of Ghana is taking to mitigate COVID-19 impact on the banking sector

The Bank of Ghana, the country's central bank, recently implemented measures aimed at mitigating the negative economic effects of the COVID-19 pandemic. These measures are crucial to prevent permanent damage to the economy, households, businesses, and the banking system. The key points of the Bank of Ghana's new measures include a reduction in the policy rate to 14.5% from 16%, which is intended to lower lending rates for borrowers and provide cash flow relief. Additionally, the central bank reduced liquidity and capital requirements for banks to prevent breaches in regulatory levels and enhance banks' ability to support affected borrowers. This increased flexibility aims to ensure the smooth flow of credit in the economy and maintain the robustness of the banking system. Moody's Investors Service Vice President and Banking Analyst, Christos Theofilou, discussed the significance of these measures in a recent CNBC Africa interview. According to Theofilou, the resilience of banks in Ghana has improved in recent years, with strengthened capital, profitability, efficiency, and liquidity profiles. The banks have benefited from a revitalization and cleanup exercise that began in 2017, positioning them well to face the current crisis. Despite these strengths, asset quality remains a key credit challenge for Ghanaian banks, given the high levels of non-performing loans. However, Theofilou believes that the banks' strong overall capital and liquidity positions, along with measures taken by authorities, will support financial stability. The reduction in the primary reserve requirement for banks from 10% to 8% is expected to enhance liquidity and promote lending to key sectors of the economy. Concerns have been raised about the structured nature of these loans to ensure they reach the intended sectors. Theofilou emphasizes that the deployment of funds by banks will depend on further incentives from authorities and the design of supportive lending schemes targeting affected borrowers. The goal is to minimize the negative impact, shorten the duration of the crisis, and prevent long-lasting harm to households and businesses. Banks are encouraged to provide facilities to customers facing short-term sectoral challenges to help them remain viable until economic recovery. Failure to support borrowers during this period could severely impact the quality of the banking system. Theofilou stresses the importance of banks and authorities working together to navigate the challenges posed by the COVID-19 crisis and ensure the resilience of the banking sector.