Specialized Deposit-Taking Institutions sector negatively affected by COVID19 .

Specialized Deposit-Taking Institutions sector negatively affected by COVID19 .
  • Ghana’s financial sector saw an increase in cash withdrawals largely due to the pandemic
  • The report states that COVID19 has posed two main risks to Ghana’s financial sector.
  • Strong capital buffers and a high liquidity position in the banking sector has cushioned the impact of COVID19
  • Report says Specialized Deposit-Taking Institutions sector was negatively affected by COVID-19 .

 

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The details

|A new report by the Bank of Ghana shows that Most microfinance companies and savings and loans companies have been unduly stressed due to customers withdrawal of deposits during the Pandemic.

Ghanaian banks have been able to cushion the impact of  Covid-19, but Specialized Deposit-Taking Institutions such as Savings and Loans Companies and Microfinance firms may have been ruffled by the pandemic.

The report, which was conducted by the central bank for the first quarter of this year, that’s from January to May, also showed that Ghana’s financial sector saw an increase in cash withdrawals largely due to the pandemic and its attendant impact.

“The banking sector’s performance remains strong, but there are emerging signs of the impact of COVID-19 on the industry’s performance as evidenced by the 2020 first quarter trend”.

COVID19 has posed two main risks to Ghana’s financial sector.

The report, first pointed out that the COVID-19 containment measures such as the lockdowns, border closures, and social distancing that were announced by government disrupted and dampened economic activities.

Firstly, it created a liquidity risk where people increased withdrawals of their monies as against deposits. Secondly, individuals and businesses that have taken loans were unable to pay back leading to high default rates.

Strong capital buffers and a high liquidity position in the banking sector has cushioned the impact of COVID19

In all these, the resilience of the banking sector helped it to withstand the shocks emanating from the pandemic. This was due to support from strong capital buffers and a high liquidity position in the banking sector.

The same cannot be said for Specialized Deposit-Taking institutions such as savings and loans companies and microfinance companies.

What's the impact of COVID19 on SDTI sector?

The report showed that the robustness of the Specialized Deposit-Taking Institutions sector was negatively affected by the adverse impact from the COVID-19 spread. For instance, the Specialized Deposit-Taking Institutions sector showed constrained liquidity conditions and capital shortfalls.

A liquidity stress test conducted by the Bank of Ghana indicated a decrease in the survival rate of the Specialized Deposit-Taking Institution sector over time. By this, most microfinance companies and savings and loans companies could not meet all the demands for withdrawal by their customers during the first three months of the period of the COVID-19 pandemic.

|Actions by BOG to salvage customers

Introduce additional policy measures as and when they become necessary to protect depositors’ funds.