Coronavirus: Banks get financial cushion

Banks and Specialised Deposit-Taking Institutions (SDIs) in the country have received a major financial cushion from the Bank of Ghana, through the latest directive on the suspension of distribution of dividends for the 2019 and 2020 financial year.

The suspension of dividends which will give the banks additional financial cushion, will also further ensure that banks and SDIs are able to support their customers throughout the COVID-19 pandemic, as well as to absorb any potential operational losses from the COVID-19 pandemic.

In a statement issued on Monday, April 20, 2020, the central bank said “The Bank of Ghana now directs that all banks and SDIs desist from declaring or paying any dividends or distributing reserves to shareholders, and from making any irrevocable commitments regarding the declaration or payment of dividends to shareholders, until further notice,” the statement said.

“For the avoidance of doubt, shareholders in this context means holders of Common Equity Shares (CET1) and Additional Tier I (AT1) capital instruments of banks and SDIs,” it added.

The directive is based on the central banks monitoring of the evolving impact of the pandemic on banks and SDIs and on their customers.

In March 2020, the central bank told the banks that they must seek approval before declaring and paying dividends on 2019 earnings as the regulator moves to guard against banks taking advantage of eased reserve rules due to the coronavirus to boost payouts to investors.

The notice further asked banks not to use liquidity gained from the eased capital rules to buy government securities, as failure to comply could lead to sanctions.

After cutting its benchmark interest rate by 150 basis points on March 18 to combat the economic impact of the virus, the central bank announced a reduction in banks’ reserve requirements. The limit was lowered to 8.0 percent from 10 percent. The Bank also halved the conservation buffer to 1.5 percent from 3.0 percent, which effectively cut the capital-adequacy ratio to 11.5 percent from 13 percent.

The Bank of Ghana further indicated that it would continue to monitor the evolving impact of the pandemic on banks and SDIs and on their customers, and would issue further directives as required.