The coronavirus and its attendant job losses and personal and corporate distress situations have led to a deterioration in the quality of loan assets held by banks around the world, threatening their own solvency in some cases, the Second Deputy Governor of the Bank of Ghana, has said.
Elsie Addo Awadzi explained while speaking at a sensitization webinar on the Corporate Insolvency and Restructuring Act, 2020 (Act 1015). Thursday August 27, that the economic impact of the pandemic on firms and households in developed and developing countries alike, is unprecedented owing to reduced demand for products and services, disruptions to global supply chains, and limited access to financial markets.
She said the current COVID19 pandemic has unleashed what is thought to be the worst global economic downturn since the Great Depression of the 1930s.
“The economic impact of the pandemic on firms and households in developed and developing countries alike, is unprecedented owing to reduced demand for products and services, disruptions to global supply chains, and limited access to financial markets.
“The attendant job losses and personal and corporate distress situations have led to a deterioration in the quality of loan assets held by banks around the world, threatening their own solvency in some cases. Policy makers around the world are working hard to reduce the economic hardship from the pandemic on businesses and households, with stimulus packages that have included unemployment benefits, small business loans, and other cash transfers, while measures put in place by central banks and regulators have also helped to improve liquidity in financial markets,” Mrs Awadzi said.
She added “Some jurisdictions have also introduced amendments to their insolvency laws (see Australia’s Response Act 2020 for example) to help delay triggers for initiating insolvency proceedings and providing temporary relief to directors from liability for failure to prevent insolvent trading.
“The Ghanaian economy has seen a significant slowdown since the onset of the pandemic, impacting negatively on businesses (especially micro, small and medium-sized) and households. The impact of the pandemic on the Ghanaian banking sector is also evident, as reflected in a dip in profitability due to lower net interest income and higher operating expenses, and an increase in credit risks owing to customers’ inability to service loans.
“In addition to fiscal policy measures put in place by Government to cushion the impact of the pandemic on local businesses and households, the Bank of Ghana instituted a number of policy and regulatory interventions including a reduction in its monetary policy rate by one hundred and fifty basis points, a reduction in reserve requirements for banks and specialized deposit-taking institutions (SDIs), a reduction in the capital conservation buffer maintained by banks, a reduction in provisioning requirements for certain categories of loans, and the purchase of Government bonds to support economic recovery efforts.
“These interventions have released significant liquidity into our banking system, which has allowed banks to account for restructured customer loans as a result of the pandemic, and grant new loans to customers in industries that have been at the forefront of helping to fight the pandemic.”
By Laud Nartey|3news.com|Ghana