The International Monetary Fund is predicting a gloomy picture for the banking sector in developing countries including Ghana in the coming year if global economic conditions do not improve.
This was captured in the latest Global Financial Stability Report released by the IMF.
The Government of Ghana embarked on a clean-up exercise of the banking space in 2017 with the hope of restoring confidence in the country’s financial sector.
Ghana is already dealing with high policy rates, worsening inflation and depreciation of the cedi.
The Government of Ghana and the Bank of Ghana have already put measures in place, including seeking a bailout from the IMF, to salvage the already distressed economy.
Government had blamed the Russia-Ukraine War and the adverse effects of the COVID pandemic on the worsening economy.
The Bretton Woods institution believes some economies may go into recession if global financial conditions remain the same.
The Global Financial Stability Report shows that financial stability risks have increased since the last report, with the balance of risks tilted to the downside.
The report said, although the global banking sector had withstood pressures till date, its global bank stress test however shows that these buffers may not be enough for some banks going into 2023 as an abrupt and sharp tightening of global financial conditions could send several economies into recession coupled with high inflation thus leading to a breach in capital requirements.
Economist at the University Of Ghana Business School, Dr. Patrick Asuming said key measures must be put in place to help with the profitability of the banks.
“In recent times, especially when this discussion about debt restructuring came up, we all know that if the domestic restructuring is to happen then it’s going to impact our banks and I think for us, it’s a more immediate shock, and it’s more likely to happen than not.
In our case, if you put that on top of rising inflation and the general weakening of the global economy, then that puts our local banks at risk. What we can do is to ensure our economic banks look bright and that will help with the profitability of the banks”.