The Cash Reserve Ratio (CRR) is a regulatory measure that determines the proportion of customer deposits that banks must hold in reserve with the central bank. The BoG introduced a new tiered CRR system in 2024 to manage liquidity in the banking sector.
Under this framework, banks with Loan-to-Deposit Ratios (LDRs) below 40% must maintain a 25% CRR, banks with LDRs between 40% and 55% are subject to a 20% CRR, and banks with LDRs above 55% benefit from a reduced 15% CRR.
Financial institutions argue that the stringent CRR requirements have constrained their ability to lend to businesses, dampening economic growth. Victor Yaw Asante, Managing Director and CEO of First Bank Ghana says lowering the CRR would significantly improve banks’ operational flexibility which makes them able to respond more efficiently to market conditions, enhance customer service, and drive economic growth.
Increased flexibility also allows banks to adapt to regulatory changes, manage risks better, and introduce innovative financial products.
“We have made a passionate appeal to the Bank of Ghana, and we are hopeful that this issue will be addressed soon,” Mr. Asante noted in an interview with a local news network.
A reduction in the CRR would free up additional capital, allowing banks to extend more loans at lower interest rates. This would be a welcome relief for businesses struggling with high borrowing costs. Analysts believe that a policy shift could stimulate private sector expansion, job creation, and overall economic resilience.
Furthermore, reducing the CRR could increase competition in the banking sector, compelling financial institutions to offer more attractive lending terms to customers. Lower interest rates would enhance consumer spending and drive economic recovery, particularly in sectors like manufacturing, agriculture, and services.
Mr. Asante also touched on the stability of the Ghanaian cedi, noting that it has performed relatively well against the US dollar in recent months. He stressed the need for export-driven strategies to boost foreign exchange reserves, reducing the country’s reliance on external financing.
“The Bank of Ghana should implement strategic interventions to address foreign exchange challenges without directly interfering in the market,” he advised.
On treasury bill auctions, Mr. Asante explained that the participation of commercial banks is primarily a function of supply and demand. He indicated that the recent decline in T-bill rates could influence overall lending costs, potentially lowering the cost of credit if the trend continues.
The ball is now in the BoG’s court. A review of the CRR could mark a turning point in Ghana’s financial landscape, fostering economic growth by making credit more accessible to businesses and individuals.
As stakeholders await the central bank’s response, financial experts emphasize the need for a balanced approach, one that maintains financial stability while fostering a conducive environment for economic expansion. If the BoG adjusts the CRR, Ghanaian businesses could soon see more affordable credit, potentially unlocking new opportunities for growth and investment.
For now, the banking sector remains hopeful that regulatory adjustments will pave the way for a more dynamic and inclusive financial ecosystem.
