BoG CRR directive to absorb GH¢16.2 billion in liquidity


Fresh analysis from Black Star Brokerage indicates that approximately GH¢16.2billion – $1.2 billion – could flow from banks to the Bank of Ghana (BoG) once the new Cash Reserve Requirement (CRR) policy becomes effective.

This would result in a tightening of cedi liquidity and a potential appreciation of the cedi in the short-term.

CRR is a rule set by central banks requiring commercial banks to keep a portion of their deposits – local and foreign currency – as cash reserves with the central bank. This, the central bank expects to ensure that banks channel regular lending, influencing economic activities.

During the 117th Monetary Policy Committee (MPC) meetings’ press briefing, central bank Governor Dr. Ernest Addison disclosed a sharp decline in credit extended to businesses and individuals, dropping from 29.5 to 5.1 percent between February 2023 and February 2024.

This decrease represents a marked reduction in funds available for businesses to invest, expand and create employment opportunities.

The governor acknowledged that this trend is due to banks’ inclination toward investing in government securities, supported by data revealing a surge in bank investments in short-term Treasury and BoG instruments. Year-on-year growth in these investments soared to 67.6 percent in February 2024, amounting to GH¢53.6billion, compared to a 36.9 percent increase the previous year.

Commenting on the new CRR directive, GCB Capital described it as the end of an era of ‘free money’, anticipating a decline in banks’ reliance on Treasury bills in favour of increased credit creation.

“It appears the era of ‘free cash’ from passive investments driving profits is over as banks will now have to ‘earn’ their profits. As a result, we expect a drastic decline in banks’ appetite for T-bills in favour of credit creation to avoid the higher brackets of the new CRR directive,” GCB Capital said.

Furthermore, GCB Capital anticipated a shift in the central bank’s stance toward a more aggressive approach to credit, which could impact the government’s deficit financing operations and the real sector.

Analysts believe that heightened competition for quality credit could potentially lower lending rates and stimulate growth through increased investments. However, they cautioned that the reduction in demand for Treasury bills could lead to higher interest costs for the Treasury’s funding operations.

“With the BoG also facing high-interest costs – around the policy rate – for its OMO operations amid the need to mop up excess liquidity to douse inflation, the directive will sweep substantial liquidity from the system – without the bank’s response – at no cost to the regulator,” GCB Capital said.

The BoG’s decision follows challenges faced by banks due to the domestic debt exchange program (DDEP), resulting from their excessive exposure to government debt. Effective April 1, 2024, the new policy mandates banks with loan to deposit ratios (LDR) exceeding 55 percent to maintain 15 percent of their deposits as reserves (CRR), while those with ratios below 40 percent must hold at least 25 percent of deposits in reserves.

In essence, the BoG is urging banks to increase their loan portfolios to avoid being required to keep idle cash without earning returns. The message is clear: take more risks with lending or face reduced ability to invest in treasury bills.

Black Star Brokerage’s analysis covered 21 out of 23 banks, excluding UBA and CBG due to data unavailability.

Among the analysed banks, Société Générale had the highest Loan to Deposit Ratio (LDR) at 74.6 percent, above the 55 percent threshold. Six banks had LDRs between 40 percent and 55 percent. They were ADB (52.37 percent), Bank of Africa (47.83 percent), First National Bank (47 percent), CAL Bank (42.81 percent), Republic Bank (41.59 percent) and Prudential Bank (40.28 percent). These will see their CRR rise to 20 percent.

The 13 banks with LDRs of less than 40 percent were Ecobank (37 percent), ABSA (36.60 percent), UMB (35.56 percent), FBN Bank (33.65 percent), GCB (32.48 percent) and Stanbic Bank (31.29 percent).

The rest include Fidelity Bank (24.95 percent), First Atlantic Bank (23.67 percent), ACCESS (23.51 percent) and Zenith (20.00 percent). Standard Chartered (19.44 percent), GT Bank (17.52 percent) and OmniBSIC (14.84 percent) complete the list of banks which will see their CRR rise to 25 percent when the directive kicks in.

Apakan Securities, in its analysis of the announcement, noted that although the adjustment in the CRR was not expected, “it reflects a tighter stance by the bank to rein in liquidity and control inflation”.

“Additionally, the CRR adjustment aims to stir banks to boost lending to support growth instead of investing excess liquidity in GoG and BoG bills. Conclusively, this is expected to drain liquidity from the market, soften demand and slow the pace of decline in GoG yields,” Apakan stated.

Some analysts believe the safety provided by government securities is still too appealing for banks to resist, especially in a very high-risk environment.



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