BoG report shows banks withstand coronavirus shocks but SDIs hit hard

A new report by the Bank of Ghana (BoG) has indicated banks have been able to withstand the COVID-19 pandemic.

However, Specialized Deposit-Taking Institutions (SDIs) such as Savings and Loans Companies and Microfinance firms have been hit hard.

In a report by the BoG for the first quarter of 2020, that is from January to May, it showed that Ghana’s financial sector recorded an increase in cash withdrawals largely due to the pandemic and its impact.

“The banking sector’s performance remains strong, but there are emerging signs of the impact of COVID-19 on the industry’s performance as evidenced by the 2020 first-quarter trend.”

The report noted that the COVID-19 measures to curb the spread of the virus such as the lockdowns, border closures, and social distancing that were announced by the government disrupted economic activities.

The Central bank said these measures posed two main risks to Ghana’s financial sector.

The first is the liquidity risk created where people withdrew more than they deposited. Secondly, individuals and businesses that have taken loans were unable to pay back leading to high default rates.

Despite these challenges, the BoG said the resilience of the banking sector helped it to withstand the shocks emanating from the pandemic. This was due to support from strong capital buffers and a high liquidity position in the banking sector.

However Specialized Deposit-Taking Institutions (SDIs) such as savings and loan companies and microfinance companies did not find it easy.

The report said the robustness of the SDI sector was negatively affected by the adverse impact from the COVID-19 spread. For example, there were constrained liquidity conditions and capital shortfalls among SDIs during the said period.

A liquidity stress test conducted by the BoG showed a decrease in the survival rate of the SDI sector over time. This means that most microfinance companies and savings and loan companies could not meet all the demands for withdrawal by their customers during the first three months of the period of the COVID-19 pandemic.

Meanwhile, the Bank of Ghana said it will continue to monitor developments in the banking sector and introduce additional policy measures whenever necessary to protect depositors’ funds.