BoG puts banks under special audit

The Bank of Ghana has commissioned a special audit into banks’ balance sheets to ascertain the true financial muscle and risk exposure of banks in the country, B&FT has gathered.

The special audit, which has already started, is being undertaken by international accounting and auditing firm PwC and will cover all the 28 licenced banks in the country.

It is thus expected that the special diagnostic audit to review banks’ assets classification and valuation, provisioning and restructuring practices, will help to determine whether a revision of loans classification and provisioning practices will be needed and new requirements introduced to rectify any potential provisioning shortfalls or prudential non-compliance.

A couple of central bank’s officials, who asked not to be named because they are not authorized to talk to the media, explained to the B&FT that the move to audit the banks is at the instance of the International Monetary Fund (IMF) amidst reports that banks are faced with huge credit risk and declining liquidity.

Currently, the structural liquidity of the banking system has changed from excess liquidity to liquidity shortage over the past year.

According to the Bank of Ghana figures, total assets of the banks have gone down from GH¢58.3 billion in June to GH¢53.8 billion in July at the same time as deposits have declined from GH¢37.1 billion to GH¢34.1 billion.

Banks have also cut their loans and advances from GH¢29.8 billion in June to GH¢27.4 billion at the end of July this year.

Meanwhile, the non-performing loans of the banks have increased from 11.2 percent in June to 13.1 per cent at the end of July as a difficult business operating environment forces consumers to default on their credit facilities.

It is envisaged that provisions of loans that have gone bad on banks books could go up on completion of the audit as some of the banks are thought to have recorded less provisioning for bad loans in order to make their balance sheet look good and keep their shareholders happy since per the International Financial Reporting Standards, any provision of bad loans will ought to be deducted from the profits.

B&FT understands that the determination of the true quantum of bank’s bad loans will have an impact on size of a business or transaction that a bank can undertake.

The Bank of Ghana has hinted that the minimum capital requirement of banks, which has already been increased from GH¢60 million to GH¢120 million will further go up in order to strengthen the capacity of banks to undertake bigger transactions.