Although the Bank of Ghana (BoG) has been consistently narrowing the wide gap it created in 2022 through losses, an Economist at the University of Ghana Business School, Prof. Patrick Asuming, insists there is an urgent need for the bank to strengthen its equity position.
Prof. Patrick Asuming has commended the BoG for significantly reducing its losses in 2024 after a similar reduction in 2023.
After recording a whopping GHC 60 billion loss in 2022, the bank has been trimming down its losses, recording a loss of about GHC 13 billion in 2023. The bank further narrowed the gap by recording a GHC 9.50 billion in 2024, signifying that the bank is heading in the right direction, but not out of the woods yet.
Analysing the latest development, Prof. Asuming indicated that it is positive that the loss has to do with the core mandate of the bank. This indicates that the bank has learnt its lessons from 2022 and its no longer financing the Central government, a move that led the bank into the “ditch.”
“The first thing to notice is that much of the losses are related to their core business, which is great. It hasn’t come from financing the government, which is something that we had that has caused us a lot of problems in 2022, so I think that is good,” he remarked.
Despite the bank sticking to its core business and shrinking its losses, the economist cautions that the central bank’s equity position remains a critical vulnerability that must be urgently addressed.
The equity of a bank measures its financial health. It is the difference between the bank’s total assets and total liabilities. A positive equity means the bank owns more than it owes, while a negative equity means the liabilities exceed the assets of the bank.
A weak equity or negative has serious implications for the operations of the Central Bank. It can undermine confidence in the central bank and limit the BoG’s ability to support monetary policy, such as controlling inflation or stabilizing the cedi.
Experts also say it can affect the credibility of the financial system and Ghana’s international standing, in addition to the possibility of triggering concerns from international lenders and credit rating agencies.
Given the weak equity position of the Bank of Ghana, Prof. Asuming highly recommends that the authorities urgently take steps to capitalize the bank to improve its equity.
He said, “2022 was an extreme year, but, you know, it’s reduced from what it was in 2023, and it’s trending the right way, so I think that is good. But, you know, I think the equity position of the BOG still needs strengthening.”
The BoG’s balance sheet has been under strain since the government’s domestic debt exchange wiped off substantial value from its holdings in 2022, effectively pushing its equity into negative territory.
Although the bank maintains that it can continue to operate with negative equity in the short term given its unique role as a central bank, many analysts argue that a long-term solution is necessary to ensure stability and safeguard monetary independence.
