DDE: Banks face continued losses in 2023, says finance expert
Speaking during an interview, Dr. Amoah suggested that even without the DDEP, banks in Ghana would still be required to shore up their capital because of exchange rate losses. He emphasized that the performance of banks is heavily intertwined with the broader economy, so any negative impact on the economy is likely to be reflected in the banks’ balance sheets.
Banks in Ghana could be set for further losses into next year as a result of the negative impact of the Domestic Debt Exchange Programme (DDEP) on their balance sheets, according to Dr. Benjamine Amoah, a Senior Finance Lecturer at the University of Ghana Business School. The DDEP, which was implemented to help the government to reduce its domestic debt burden, has reportedly resulted in banks in Ghana losing around GHS 15 billion, prompting the Bank of Ghana to increase the minimum capital requirement for financial intermediaries. As per the Bank of Ghana’s regulations, banks have until 2025 to restore their minimum paid-up capital.
Speaking during an interview, Dr. Amoah suggested that even without the DDEP, banks in Ghana would still be required to shore up their capital because of exchange rate losses. He emphasized that the performance of banks is heavily intertwined with the broader economy, so any negative impact on the economy is likely to be reflected in the banks’ balance sheets.
Dr. Amoah went on to say that it is not surprising that banks in Ghana are reporting losses for 2022, and that the situation may continue into the next year due to the challenges facing the economy. As he explained, “It is simply the reflection of what has happened in the economy over the past year or so and the fact that these banks also operate within the economy. So whatever happens in the bigger economy would definitely reflect on the performance of the banks and to a large extent on the balance sheets of these banks”.
The Bank of Ghana has clarified that the derecognition losses resulting from the DDEP will be spread over a four-year period starting from 2022, for the purposes of computing the Capital Adequacy Ratio (CAR) under the International Financial Reporting Standards (IFRS). According to the IFRS, derecognition refers to the removal of an asset or liability (or a portion thereof) from an entity’s balance sheet.
The impact of the DDEP on banks’ balance sheets has prompted some analysts to call for a review of the programme. Some have suggested that the government should consider alternative measures for reducing its domestic debt burden, as the DDEP may have unintended consequences for the broader economy. The negative impact of the DDEP on banks in Ghana is a reminder of the interdependence between banks and the broader economy, and highlights the need for effective regulation and risk management practices in the financial sector.
Source : norvanreports.com
