CRR: Almost GH¢50bn To Be Injected into Real Economy – Report

The real sector – businesses and households in the country – could be set for a significant boost with loans and advances extended to them potentially growing by as much as GH¢49billion as a result of the new directive by the Bank of Ghana (BoG), analysis by GCB Capital has shown.

This policy shift, implemented through a tiered Cash Reserve Ratio (CRR) system, aims to incentivise banks to increase lending activity and unlock much-needed capital for economic growth.

Previously, banks had favoured low-risk investments, especially Treasury bills (T-Bills) due to a heightened risk-averseness, a posture which many had decried as ‘lazy banking’.

This cautious approach resulted in sluggish credit growth despite strong deposit levels.

Following the latest Monetary Policy Committee (MPC) meetings, Governor of the central bank Dr. Ernest Addison revealed that as of February 2024, private sector credit growth stood at 5.1 percent, a significant drop from the 29.5 percent growth seen in February 2023. Conversely, banks’ investments in Treasury instruments reached GH¢53.6billion by February 2024, marking a 67.6 percent increase year-on-year, compared to a 36.9 percent increase in the same period of 2023. In actual terms, private sector credit decreased by 14.7 percent.

This came despite banks experiencing a surge in deposits in the wake of the Domestic Debt Exchange Programme (DDEP). The latest banking sector data indicates a YoY deposit growth of 25.5 percent in February 2024, reaching GH¢224.4billion, which is an increase of GH¢45.6billion.

Consequently, businesses struggled to access financing for expansion or even day-to-day operations, while households grappling with rising costs found loan applications met with resistance.

However, the new CRR system introduces a tiered structure, with banks maintaining a lower CRR – essentially holding less money in reserves – if they demonstrate a higher loan-to-deposit (L/D) ratio. This incentivises banks to lend more, potentially freeing up a significant amount of capital for new loans.

Explaining the implications, Courage Boti, Research Lead at GCB Capital, said banks are faced with extending an additional GH¢49billion in credit or keeping as much as GH¢17.9billion with the apex bank.

“Using the latest available numbers, the 22 banks will be required to grow their loan portfolio by about GH¢49billion to avoid keeping an additional GH¢17.9billion with the Bank of Ghana in keeping with the new directive,” he said, citing an analysis of all the banks in the country except the National Investment Bank (NIB).

The impact of this policy shift could be multi-faceted. Businesses across various sectors – agriculture, industry and services – are expected to benefit the most.

“Key players should position themselves to tap into this anticipated credit growth… This could lead to a timely boost for economic activity and new investments, potentially creating jobs and stimulating overall growth,” Mr. Boti remarked.

He added this could see lending rates drop from the average of 32.8 percent recorded in February 2024.

The hard way now the only way Despite the positive projections, GCB Capital cautioned that the road to economic recovery might not be entirely smooth. Banks, it says, might become more selective in their lending practices, prioritising blue-chip companies with a proven track record over smaller businesses or start-ups perceived as higher risk. This could exacerbate existing inequalities in access to credit.

“We expect loan book expansion to be gradual. Banks will need to balance the potential for increased profits with the need to preserve capital and restore capital adequacy ratios that might have been impacted by non-performing loans,” Mr. Boti explained.

“Given the uncertain operating environment and the rising NPL levels, this is a tough task, potentially signalling the end of an era of ‘free cash’ for banks from passive investment in attractively priced money market instruments, particularly as the strong rebound in profitability in 2023 was mainly driven by investments. Banks may now earn profit ‘the hard way’ through credit creation,” he further elaborated.

Counter-intuitive

In his commentary on the MPC decision, the Director of Research at the Institute of Economic Affairs, Ghana (IEA), Dr. John Kwakye, warned that the move could be counterproductive as banks would translate the cost of the redundant funds to the consumer.

He argued that the growth in money supply was primarily a function of the BoG’s financing of the budget deficit and suggested that banks should earn interest on their idle deposits.

“The cash reserve ratio serves two purposes – a monetary control purpose and a prudential purpose; to ensure banks can meet their obligations. We are using the CRR and MPR as monetary control instruments. These are not the solutions to the problem. BoG contributed to the excess liquidity due to the monetary financing of the budget and, then, you turn around to mop the excess liquidity through very high interest rates and very high reserve requirements. It is too much and when you do that… the central bank is not paying interest on it.

“I would even advise that they pay interest on it because it is a cost to the bank, and what do you expect the bank to do? They will increase their lending rate to the consumer,” he explained in detail.

Dr. Kwakye — a former member of the central bank’s MPC — stated that if the right things were being done, a CRR of five percent, if any, should be applied to the industry.

“What is reasonable? I would say nothing more than five percent. I would even say that we do not need it. If we were doing the right things, we would not need it,” he affirmed.

In the fight against infectious diseases, vaccines stand as one of public health’s most powerful tools. Yet, the challenge of vaccine hesitancy, particularly within minority communities, poses a significant barrier to achieving widespread immunisation and herd immunity. Amid this challenge, an innovative solution has emerged: using artificial intelligence (AI) to understand and address the roots of vaccine scepticism, thereby fostering trust and promoting informed health decisions.

Recent initiatives have demonstrated AI’s potential to transform public health communication, especially in reaching minority groups that historically have been marginalised or faced barriers to accessing reliable health information.

For instance, a project conducted by the Public Health Agency of Canada utilised AI to analyse social media discourse related to vaccines. The AI identified prevalent myths and misinformation contributing to hesitancy, enabling targeted interventions that increased vaccination rates in underserved communities by up to 15 percent.

Similarly, in the United States, a collaboration between healthcare providers and AI researchers led to the development of a chatbot designed to engage with minority populations in their preferred languages. This tool provided tailored responses to vaccine-related questions, addressing concerns with empathy and evidence-based information. In a pilot study, the chatbot was credited with a 20 percent increase in vaccine acceptance among participants, showcasing the impact of personalised, AI-driven communication.

Moreover, AI’s data analytics capabilities offer insights into the complex factors that influence vaccine hesitancy. For example, an analysis in the Journal of Medical Internet Research revealed that among minority communities, concerns over vaccine side effects, mistrust in the healthcare system and lack of culturally relevant health information were key drivers of hesitancy. Armed with this knowledge, public health campaigns could develop more effective messaging and outreach strategies.

The success of AI in this arena also relies on its ability to provide real-time, scalable interactions. In India, an AI-powered platform was deployed to rural areas where vaccine hesitancy was high among minority groups due to misinformation. The platform managed to reach over 100,000 individuals in a month, significantly outpacing traditional outreach methods. Pre- and post-interaction surveys indicated a notable shift in perceptions, with a 30 percent decrease in hesitancy rates among the targeted communities.

However, leveraging AI to combat vaccine hesitancy is not without its ethical considerations. Concerns about data privacy, the potential for reinforcing biases and the need for transparency in AI’s decision-making processes are paramount. Ensuring that AI interventions are developed with input from diverse communities and adhere to strict ethical standards is crucial for maintaining public trust and effectiveness.

To address these concerns, some projects have adopted a co-design approach, involving community leaders and members in the development of AI tools. This collaborative method ensures that interventions are culturally sensitive, ethically sound and more likely to be embraced by the communities they aim to serve.

Furthermore, transparency about AI’s role and limitations in public health communication helps mitigate fears of manipulation or privacy breaches. By openly discussing how AI is used, the data it analyses and the safeguards in place to protect individuals’ information, health authorities can build trust and encourage open dialogue about vaccines.

As the deployment of AI in combating vaccine hesitancy among minorities continues to evolve, the importance of ongoing evaluation and adaptation cannot be overstated. Real-world case studies and pilot programmes offer valuable lessons, but the dynamic nature of public health challenges demands that AI tools and strategies be continually refined based on new evidence and community feedback.

AI presents a promising avenue for bridging the gap in vaccine communication and uptake among minority populations. By providing personalised, accessible and culturally relevant information, AI-driven interventions have the potential to transform vaccine hesitancy into acceptance.

However, the success of these initiatives hinges on a commitment to ethical principles, community engagement and transparency. As we harness AI’s capabilities to promote public health, let us move forward with a keen awareness of its power to both inform and empower, ensuring that technology serves as a force for equity and well-being in the global fight against disease.

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any organisation.

>>>I’ll be your wingman on your health journey! The writer is a public health professional with a Master’s degree rom the University of Illinois at Springfield, USA and works as a Medical Fraud Analyst at the Illinois Office of Inspector-General. He founded GD Consult in Ghana to promote healthy lifestyles and developed innovative projects, such as a Health Risk Assessment Model for hydraulic fracking operations. He can be reached via godson.davies@yahoo.com