IMF proposes acquisition, mergers of banks to mitigate financial sector instability

June 7, 2023 / Comments (0)

News Show on Home

The International Monetary Fund (IMF) is asking government to consider a possible acquisition and mergers of banks and other non-bank financial instructions as part of moves to mitigate the country’s financial sector shocks.

Under its risk assessment matrix, the IMF in its latest country report in Ghana in said these proposals if adopted will among other things tackle insolvencies in countries with weak banks and other financial institutions amid the economic slowdown.

It warned that failure to do this will further exacerbate market disruptions and deepen hikes in real interest rates.

The IMF however posits that these are medium risks but could hamper the capital adequacy of banks, their capacity to lend thereby affecting credit to the private sector and derailing economic growth.

To this end, the IMF in its policies to mitigate the risks is proposing that:

1. Ghana strengthens financial safety nets and closely monitor bank and NBSFIs liquidity as well as asset quality.

2. That Ghana designs an adequate banks and Non-Bank Financial Institution recapitalization strategy and

3. Encourage acquisition and mergers of banks if needed.

Ghana’s International Monetary Fund (IMF) programme will among other things revise the Bank of Ghana Act in a bid to strengthen the central bank’s independence and mitigate fiscal dominance.

The amendments to the BoG Act will feature a stricter limit for monetary financing, mechanisms to monitor and enforce compliance, and a clear definition of emergency situations under which the limit can be temporarily lifted.

Pending legislative changes, as part of the prior actions required by the IMF before Ghana got the deal, the BoG and the Ministry of Finance signed a memorandum of understanding (MoU) to eliminate monetary financing during the programme.

An ongoing updated Safeguards Assessment will provide additional support for designing changes to the BoG Act.

It will review the authorities’ gold purchase and gold-for-oil programmes and associated risks for the BoG.

The BoG’s balance sheet is also expected to be affected by the debt restructuring.

The IMF said the government and the BoG would assess the impact and develop plans for its recapitalization with Fund technical assistance support.

Source: citibusinessnews.com

Leave a Reply

Your email address will not be published. Required fields are marked *