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Any strong economy is reflective of its robust financial system so when macroeconomic indicators point to a positive direction, it is largely fueled by players in the financial sector. Financial Analysts and researches were equally concerned about how the COVID-19 pandemic could derail the gains made in sustaining the banking sector during the crises. Globally, to reduce the spread of the novel COVID-19, governments enacted mitigation strategies based on social distancing, national quarantines, and shutdown of non-essential businesses. The halt to the economy represented a large shock to the corporate sector, which had to scramble for cash to cover operating costs as a result of the revenue shortfall. The financial sector, and Commercial banks in particular, are expected to play a key role absorbing the shock, by supplying much needed funding (Acharya & Steffen, 2020; Borio, 2020).
In fact, under these unprecedented circumstances, central banks and governments enacted a wide range of policy interventions. While some measures have aimed to reduce the sharp tightening of financial conditions in the short term, others sought to support the flow of credit to firms, either by direct intervention of credit markets (e.g., government sponsored credit lines and liability guarantees), or by relaxing banks’ constraints on the use of capital buffers. While credit institutions were being called to play an important countercyclical role to support the real sector, these actions also have a series of implications for the future resilience of the banking sector. For instance, as lenders exhaust their existing buffers, they might also experience deterioration of asset quality which may threaten the systems’ stability. As the crisis is expected to continue, even after the lockdowns were lifted and economies start to reopen, the net effect of these policy measures on the banking sector is largely unknown. Commercials Banks in Ghana recently published their 3 rd quarter 2020 management financials and a quick review is being done to understand how they have managed to sustain the shocks during this pandemic.
Capital Adequacy Levels
Capital Adequacy Ratio (CAR) is a measurement of a bank’s available capital expressed as a percentage of a bank’s risk-weighted credit exposures. This is basically used to protect depositors and promote the stability and efficiency of financial systems around the world. But it is important to look at what two types of capital measures: tier-1 capital, measures how any bank absorb losses without a bank […]
