Ghana Pursues $250 Million World Bank Loan for Banking Sector Stability

The Government of Ghana is negotiating a $250 million loan with the World Bank to support banks affected by the Domestic Debt Exchange Programme. This funding is part of the Ghana Financial Stability Project and aims to recapitalize at least 11 financial institutions in 2025. Previous interventions have proven successful in stabilizing the sector, highlighting the government’s commitment to financial stability and economic growth.

The Government of Ghana is currently in advanced discussions with the World Bank to secure a funding package of $250 million. This initiative is aimed at supporting banks and financial institutions adversely affected by the Domestic Debt Exchange Programme (DDEP). It forms part of the larger Ghana Financial Stability Project designed to strengthen the resilience of the financial sector.

The main objective of this funding is to provide necessary capital to financial institutions struggling following recent debt restructuring efforts. The government plans to recapitalize a minimum of 11 financial institutions in the year 2025, highlighting its commitment to ensuring stability within the sector.

At a recent event launching the five-year strategic plan for the Ghana Association of Savings and Loans Companies, Andrew Amerkson, who oversees Banking and Non-Banking at the Ministry of Finance, presented the government’s commitment to maintaining sector stability. On behalf of Finance Minister Dr. Cassiel Ato Forson, he referenced the proactive measures implemented, including the allocation of GH¢5.7 billion from the Ghana Financial Stability Fund to stabilize and recapitalize bonds in the financial sector.

Dr. Forson emphasized the successful outcomes of previous interventions, specifically mentioning the Ghana Financial Stability Fund A2, which aided 11 financial institutions last year, comprising four banks, four capital market operators, and three insurance companies. This established the government’s ability to respond effectively to financial sector needs.

The World Bank loan of $250 million is strategically significant, as it targets the recapitalization of banks and savings and loans institutions (SDIs). This funding is intended to not only address liquidity issues but also to bolster institutional resilience, ensuring these entities contribute effectively to the economic growth of Ghana.

The DDEP has significantly affected local banks, leading some to face technical insolvency and thus necessitating additional shareholder capital support, as well as participation in the Ghana Financial Stability Fund. An IMF Country Report indicated expectations of GH¢1.5 billion from the World Bank and other partners to enhance capital buffers for qualifying banks.

The government’s current direction is pivotal and comes at a time where it seeks to stabilize the banking sector, restore investor and depositor confidence, and reinforce the resilience of financial institutions amidst ongoing economic challenges.

In summary, the Government of Ghana is negotiating a $250 million loan from the World Bank as part of efforts to support banks impacted by the Domestic Debt Exchange Programme. This initiative, framed within the Ghana Financial Stability Project, aims to recapitalize at least 11 financial institutions in 2025, ensuring the long-term stability and growth of the banking sector. Continued interventions will be critical for restoring confidence amidst economic challenges.

Original Source: www.ghanaweb.com