Bank of Ghana highlights manageable liquidity risks with a caution on interest rate sensitivity

The Bank of Ghana (BoG) has confirmed that liquidity risks in the banking sector are currently under control, assuming Government of Ghana (GoG) bonds retain their market liquidity. Central bank stress tests indicate that, in a stable GoG bond market, most banks could endure daily deposit withdrawals of 1% to 4% over a 30-day period. However, should liquidity in the GoG bond market tighten, banks could face challenges sustaining withdrawals above 1% of deposits for a month.

Interest Rate Risks Challenge Capital Adequacy

While liquidity remains manageable, the sector’s vulnerability to interest rate volatility persists. BoG’s stress tests suggest that a 16-percentage-point hike in interest rates over the next year could lower the average Capital Adequacy Ratio (CAR) from 13.85%—post-Eurobond restructuring—to 11.57%, nearing regulatory minimums. However, a gradual decline in interest rates could alleviate this pressure by allowing liabilities to reprice more quickly than assets, potentially bolstering solvency.

Minimal Exposure to Exchange Rate Fluctuations

The BoG also indicated limited exposure to exchange rate volatility, even amid potential cedi depreciation against the US dollar. Stress tests show that, due to regulatory limits on Net Open Positions (NOP), substantial cedi devaluation would have minimal impact on banks’ solvency metrics.

Overall, the BoG’s assessment reveals a cautiously optimistic outlook for the banking sector’s stability, underscoring the critical roles of a liquid bond market and prudent fiscal management to support resilience against ongoing macroeconomic pressures.