The International Monetary Fund (IMF) says Ghana’s banking sector would remain resilient even if global gold prices were to fall sharply by 30 percent or 45 percent, with banks expected to maintain capital levels above the regulatory minimum under both scenarios.
The assessment is contained in the IMF’s latest Selected Issues Paper, which examined the resilience of Ghana’s financial system to severe commodity price shocks, given the country’s growing dependence on gold exports.
According to the Fund, stress tests based on hypothetical declines of 30 percent and 45 percent in international gold prices showed that the banking sector has sufficient capital buffers to absorb the impact, largely due to reforms and recapitalisation efforts undertaken after the Domestic Debt Exchange Programme (DDEP).
“The banking system remains broadly resilient at the aggregate level under both moderate and severe shocks,” the IMF said in the report.
The Fund noted that although gold now accounts for more than half of Ghana’s total exports, banks’ direct exposure to the mining industry remains relatively low.
Loans to the mining sector account for just 5.3 percent of total bank lending, limiting the direct impact of a downturn in the gold industry.
Instead, the IMF said the biggest risks would arise indirectly through weaker economic growth, exchange rate depreciation, higher inflation, tighter monetary policy and a possible increase in non-performing loans.
While the overall banking sector is expected to remain stable, the report warned that some domestically owned banks with relatively lower capital buffers could face greater pressure under a severe shock.
The IMF also identified the Bank of Ghana as more vulnerable than commercial banks because of its increasing gold holdings.
A sharp decline in gold prices, it said, would reduce the value of the central bank’s reserves and delay efforts to restore its balance sheet to positive equity.
To strengthen the financial sector against future external shocks, the IMF recommended that Ghana continue building capital buffers across the banking industry, complete the recapitalisation of weaker institutions and ensure the Bank of Ghana’s future recapitalisation strategy adequately reflects commodity price risks.
The Fund added that maintaining prudent supervision and completing ongoing financial sector reforms would be critical to preserving financial stability amid global market uncertainties.
CREDIT: MAVIS FANTEVI