BoG’s Recalibration of Cash Reserve Ratio  to boost loan book expansion, stimulate private sector credit growth

In a strategic move aimed at revitalizing credit to the private sector and bolstering the real economy, the Central Bank has recalibrated the Cash Reserve Ratio (CRR) of banks in the country.

According to insights from GCB Capital, this intervention seeks to galvanize loan book expansion amid a backdrop of limited policy support for broader economic growth.

Effective April 2024, the Monetary Policy Committee (MPC) has revised the CRR requirements for banks, with differential rates based on Loan-Deposit (L/D) ratios.

Banks maintaining an L/D ratio between 40% to 55% and below 40% are mandated to uphold Cash Reserve Ratios of 20% and 25%, respectively, with the Bank of Ghana. Conversely, a 15% CRR remains unchanged for banks with an L/D ratio exceeding 55%.

Despite a robust 25.5% year-on-year growth in total banking sector deposits, reaching GHS224.4 billion—an increase of GHS45.6 billion—GCB Capital’s analysis reveals a stark disparity in loan growth.

Loans and advances saw a meagre uptick of 1.77% year-on-year, settling at GHS74.8 billion, a GHS1.3 billion increment.

While private sector credit managed a modest 5% growth to GHS68.8 billion, representing a GHS 3.3 billion rise, the real-term picture is less encouraging. Adjusted for inflation, private sector credit actually contracted by 14.7%, dwindling to GHS 331.1 million.

The data further highlights banks’ shifting investment strategies. Amid rising uncertainty in the operating landscape, banks have increasingly diverted their deposits toward safer avenues, notably the Government of Ghana Bills and Bank of Ghana Open Market Operation (OMO) Bills.

This cautious approach is underscored by a substantial 67.6% year-on-year surge in the investment portfolio, amounting to an additional GHS 53.6 billion.

In sum, Ghana’s banking sector appears to be treading cautiously, prioritizing low-risk investments over credit and loan book expansion to the private sector.