DBG welcomes German parliamentarians in a dialogue on economic empowerment
In a significant engagement underscoring international collaboration for sustainable development, Development Bank Ghana (DBG) hosted a distinguished delegation from Germany’s Bundestag (Federal Parliament).
The visit took place at DBG’s headquarters recently.
The German delegation was led by Mr. Volkmar Klein, MP, representing the State of North Rhine-Westphalia, and Mr. Lutz Lienenkämper, the State’s former Finance Minister. They were joined by Mrs. Ramona Simon, Deputy Head of Cooperation at the German Embassy in Ghana, alongside KfW Development Bank’s officials, namely, Ms. Sarah Christin Petrenz, Senior Portfolio Manager, and Mr. Isaac Hagan, Portfolio Coordinator – Financial Sector, representing the German state-owned development bank’s Accra office.
Discussions during the meeting spanned DBG’s forward-looking initiatives, including the Green Finance & Investment Facility and the DBG Guarantee product, highlighting DBG’s commitment to fostering economic resilience and sustainability. The Green Credit Line (financed by the German Federal Ministry for Economic Cooperation and Development (BMZ), implemented by KfW) is envisaged to start implementation in the second quarter of 2024 in
Ghana and is expected to complement DBG’s efforts in green financing.
A focal point of the visit was the introduction of the upcoming 3i Africa Summit, slated for May 13th-15th, 2024, in Accra. This summit promises to be a ground-breaking event, focusing on technology opportunities within Africa’s financial sector. It aims to explore market dynamics, the leapfrogging of legacy technologies, and the crucial dialogues needed at the intersection of policy, finance, and technology. With a core emphasis on inclusion and sustainability, the 3i Africa Summit aspires to drive meaningful discourse and actionable insights for the continent’s financial ecosystem.
The DBG team, led by Deputy Chief Executive Officer, Michael Mensah-Baah and including key officials such as Chief Risk Officer, Dr. Prince Adjei, and heads of various strategic departments, shared insights into DBG’s operational strategies and its vision for a transformative impact in collaboration with its partners.
Reflecting on the discussions, Michael Mensah-Baah remarked, “The German Government, through KfW has been very supportive of DBG and its efforts to foster economic growth by empowering local businesses. We have had fruitful discussions on our operations, our agenda for 2024 and how we are positioned for greater impact through our lending activities and technical assistance to local businesses in collaboration with our partner banks and agencies respectively. We look forward to our on-going collaboration and believe that together with our German partners, we will be able to deliver significant transformation. We are primed for this.”
Mr. Volkmar Klein, MP from the German State of North Rhine-Westphalia on the other hand, commended DBG on the work it is doing and how far DBG has come.
Development Bank Ghana is a wholesale financial institution established by the Government of Ghana. DBG acts as a provider of long-term capital to the market with a mission to foster strong partnerships to finance economic growth, create jobs, and build capacity for SMEs. The organisation is committed, aligned and strengthened to achieve UN Sustainable Development Goals (SDGs) ambitions and targets while implementing Environmental, Social, and Governance (ESG) strategy aimed at creating shared value and impact with purpose. The bank has received funding from the World Bank, European Investment Bank, KfW Development Bank and the African Development Bank.
In a compelling address at Impact Hub in New York, the Chief Executive Officer of the Youth Employment Agency (YEA), Mr Kofi Agyepong, captured the attention of a diverse global audience, underscoring the organisation's unwavering commitment to tackling youth unemployment across the sub-Saharan region.
Amidst the vibrant atmosphere of the event, he illuminated the challenges faced by YEA in securing adequate funding, emphasising the necessity for innovative strategies to address this pressing issue.
Notably, he highlighted initiatives such as the Community Protection Assistants, Community Health Workers, and Prison Office Assistants, showcasing the agency's collaborative efforts with esteemed partners like Afarinick, Inzag, insurance companies, and Guinness Ghana Limited.
The key focus of Mr Agyepong's presentation was the transformative impact of YEA's Business & Employment Assistance Programme (BEAP), set to provide crucial salary support to over 10,000 businesses directly.
Additionally, the agency's dedication to bolstering the garment industry was underscored, citing the empowering over 500 Micro, Medium, and Small-Scale apparel companies alongside 40 major garment enterprises, providing extensive training opportunities in dressmaking.
Mr Agyepong emphasised YEA's dedication to skills development, noting the pride in overseeing the training of approximately 10,000 youth across ten distinct trade areas, laying the groundwork for lifelong empowerment.
Despite the challenges ahead, he reiterated YEA's steadfast commitment to reshaping Ghana's employment landscape, pledging to continue spearheading efforts to eradicate unemployment, one success story at a time.
Arecent research paper by banking consultant Dr Richmond Atuahene highlights the persistent pressure on private-sector credit due to the Bank of Ghana’s elevated Credit Reserve Ratios (CRR).
Titled ‘Thirsty Banks: Ghana’s Dilemma with High Cash Reserve Ratios,’ the report delves into the repercussions of the Bank of Ghana’s revised cash reserve ratios for commercial banks.
According to the findings, the stringent CRR policies imposed by the Bank of Ghana are limiting credit availability to the private sector, as banks are compelled to allocate a substantial portion of their deposits to reserves instead of extending loans.
Under the new regulations, banks with varying loan-to-deposit ratios face CRR requirements ranging from 15% to 25%, based on their lending activities.
The report warns that these elevated CRR levels could hamper economic growth, particularly in sectors reliant on bank financing for investment and expansion.
While the CRR is a crucial monetary policy tool aimed at stabilising the financial system and controlling inflation by curbing lending liquidity, excessively high ratios can impede economic activity by reducing funds available for investment and consumption.
The constraints imposed by high CRR could lead to diminished investment, slower economic expansion, and limited opportunities for individuals and businesses to access credit for essential needs like education, housing, and entrepreneurship.
The paper also highlights the government’s dependence on treasury bills due to limited access to domestic and international bond markets, resulting in elevated interest rates to attract commercial banks and private investors.
To tackle this challenge, policymakers may need to reassess the CRR levels and their impact on private-sector credit, striking a balance between financial stability and economic growth.
Gradually reducing the CRR while monitoring its effects on inflation and financial system stability could help unlock more funds for lending without jeopardising overall stability.
Moreover, alternative monetary policy tools such as open market operations and targeted lending programs could supplement efforts to support private sector credit.
Collaborative efforts between the central bank, government, and financial institutions are crucial in devising and implementing policies that foster sustainable economic growth while safeguarding the financial system.
Below are some recommendations from the Report
While it can be beneficial for central banks to implement higher Cash/Primary Reserve ratios to control inflation and stabilize the local currency’s value, excessive ratios can lead commercial banks to hold more cash with the central bank, thereby limiting their ability to lend.
Conversely, lower cash reserve ratios allow banks to maintain less cash with the central bank, boosting their lending capacity. Bank of Ghana should reconsider reducing the mammoth cash reserve ratios by taking into account the GH¢50.6 billion of customers’ deposits used to purchase restructured government bonds with an extended maturity period until 2031.
Furthermore, the Bank of Ghana and commercial banks need to exert significant effort to reduce the current Non-Performing Loan (NPL) ratio from 24% to around 10% to fortify the banking sector’s resilience. A resilient banking sector encompasses more than just profitability; high NPLs can lead to poor capitalization among banks, liquidity challenges, and even insolvency for some institutions.
The Bank of Ghana’s MPC report in March 2024 affirmed these concerns, indicating a mixed outlook on key financial soundness indicators.
Over the past two years, the private sector has suffered due to the government’s overwhelming presence in the treasury bill market. To revitalise the private sector, authorities must focus on lowering short-term bill rates below 20 per cent to foster competitiveness in the domestic market. Additionally, efforts should be made to curb the increasing diversion of credit from the private sector to the central government.
Addressing Ghana’s economic challenges requires a comprehensive approach that goes beyond relying solely on traditional monetary policy tools like increasing commercial banks’ reserve requirements or adjusting monetary policy rates.
These measures have been excessively utilised in previous years and have become less effective due to the structure of the Ghanaian economy, which has developed a level of resistance to them over time. Bawumia (2010) affirms that the high level of reserve requirements (monetary policy instrument) reflects a legacy of high fiscal deficits.
In addition to monetary policy adjustments, significant fiscal interventions are necessary to navigate the economic difficulties. This includes implementing substantial reductions in government expenditure to alleviate the current economic strain.
To combat inflationary pressures effectively, authorities must proactively reduce central government spending by an additional 30%, with a particular focus on trimming down flagship programs that have failed to deliver significant economic benefits since their inception.
In summary, the government should refrain from burdening the banks and instead concentrate on making drastic cuts to its excessively large budget. Commercial banks have incurred considerable losses as a result of the DDEP and are still in the process of recuperating; they should be allowed to fully recover without further burdens!
This prompted the government to formally seek help from the IMF and after meeting all the prior actions and requirements, the Board of the IMF approved Ghana’s programme in May 2023.
Ten months after implementing the programme, macro-economic stability appears to be re-emerging again.
Latest figures by the Ghana Statistical Service (GSS) indicates that on provisional basis, overall GDP for 2023 grew by 2.9% compared to a target of 2.3% in the 2023 Mid-Year Review Budget.
Inflation also declined by 30.9 percentage points to 23.2% in December 2023, before picking up slightly to 23.5% in January 2024 and declined again to 23.2% in February 2024.
The cedi also cumulatively depreciated against the US Dollar by 27.8% at the end of December 2023 down from the depreciation rate of 50% at the end of November 2022. For the first three months of the year, the Cedi has depreciated by 6.8% as of March 20, compared to 22.1% recorded in the same period in 2023.