Suspending dividend payments to shareholders necessary – Banking consultant

Suspending dividend payments to shareholders necessary – Banking consultant

Nana Otuo Acheampong - Banking Consultant

A Banking Consultant, Nana Otuo Acheampong has said the decision by the Bank of Ghana (BoG) to halt payment of dividends to shareholders is a move necessary to protect banks in the country.

According to him, BoG has the power to undertake a periodic assessment of the financial sector to protect depositors’ funds as the country fights the COVID-19 disease.

His comments come on the back of a directive by the central bank to all banks and Specialized Deposit Institutions (SDIs), to desist from declaring and paying any dividends or distributing reserves to shareholders as the country fight the global pandemic, COVID-19.

Explaining the rationale behind such a move, Otuo Acheampong said the Bank of Ghana is planning against shocks that may disrupt the financial sector as the world struggles to contain the spread of the virus.

 

“When you return profits to shareholders, effectively you are reducing your capital fund and the destruction we are witnessing with this pandemic means that if you decide to return profits to shareholders and use your capital buffer, in case of any crisis where some loans go bad and so on you don’t have any capital to fall on.”

 

“So, it is in your interest to ensure that you don’t return those capital to shareholders because if you do, you will probably end up with no bank at all. And having your company in existence is more preferable to collapsing it because you have to return profit to shareholders. So, the balance sheets of banks are supposed to be reinforced to help cope with the destruction,” he stated.

 

Also, in the quest to mitigate the economic impact of the coronavirus on Ghanaians, the Bank of Ghana last month, directed all financial institutions operating in the country to take adequate steps to help curtail the spread of the coronavirus COVID-19.

BoG to sanction banks, other SDIs for misuse of incentives amidst COVID-19 pandemic

Additionally, the Bank of Ghana last month, announced that it will sanction banks and other Specialized Deposit-Taking Institutions (SDIs) that fail to efficiently utilize its interventions to increase their liquidity to contain the impact of the coronavirus pandemic.

The central bank also, in earlier releases, announced some major reviews to make it possible for banks and other SDIs to have enough liquidity to sustain their operations.