{"id":345616,"date":"2017-08-17T11:27:10","date_gmt":"2017-08-17T11:27:10","guid":{"rendered":"http:\/\/citifmonline.com\/?p=345616"},"modified":"2017-08-17T11:27:10","modified_gmt":"2017-08-17T11:27:10","slug":"researchers-predicted-ghanaian-banking-crises","status":"publish","type":"post","link":"https:\/\/citifmonline.com\/2017\/08\/researchers-predicted-ghanaian-banking-crises\/","title":{"rendered":"Researchers predicted Ghanaian banking crises"},"content":{"rendered":"<p>A stress test of Ghanaian banks conducted by two researchers, Anthony Q. Q. Aboagye and Effa Ahenkora, had predicted that three Ghanaian banks would collapse under severe stress.<\/p>\n<p>In a study which assessed the capacity of Ghanaian banks to absorb large but plausible losses resulting from concentration of individual bank loan portfolios in key sectors of the Ghanaian economy, the researchers found that capital adequacy ratios of many banks would have been negatively impacted, some to the point of becoming insolvent.<\/p>\n<p>Stress tests provide a simulation of plausible negative scenarios to determine the ability of a financial institution to deal with an economic crisis or other types of risks that exist in an economy.<\/p>\n<p><strong>Negative Capital Adequacy Ratio<\/strong><\/p>\n<p>Using data from 2012, 2013 and 2014, the researchers found that many of Ghana&#8217;s banks did not diversify their loan portfolios enough, exposing them to risk of insolvency if those sectors faced crises.<\/p>\n<p>According to suggestions from the study, &#8220;many bank loan portfolios are sufficiently exposed to shocks that may strike Commerce and Finance and Services sectors or other sectors of the Ghanaian economy&#8221;.<\/p>\n<p>Using data from 2014, they found that under extreme but plausible stress, the Capital Adequacy Ratios (CAR)s of 13 banks fell below the regulatory minimum. It found that three of the banks, including UT bank, would have failed because their CARs were negative.<\/p>\n<p><strong>Contagion<\/strong><br \/>\nThe study, which was published in 2017, found that because Ghanaian data suggests increasing dependence of banks on each other, negative shocks felt by some banks are likely to be transmitted to many other banks.<\/p>\n<p>In what could be described as a more alarming finding, the study also averred that &#8220;there is a potential for banking sector contagion, because if called upon to meet capital adequacy requirement, affected banks may have opted to achieve this by trying to quickly sell assets or play in the interbank market, actions which, if undertaken by so many banks, especially under extreme stress, would have driven down the value of assets, leading potentially to banking sector contagion.&#8221;<\/p>\n<p>Data from the study also showed a high proportion of gross income for the banking industry came from interest earned on loans, 45.3 percent specifically.<\/p>\n<p>This figure was more than any other income stream or activity, which suggests that a big negative shock that affects interest on loans will negatively impact bank profitability, which in turn will reduce amount transferred to income surplus (retained earnings), hence bank capital.<\/p>\n<p>The study ended by urging bank managers, supervisors and other managers of the Ghanaian economy to diversify their bank loan portfolios to reduce the impact of Sector specific non-performing loans (NPLs).<\/p>\n<p>According to the Bank of Ghana, the average NPL of Ghanaian banks is approximately 20%, a figure analysts describe as very high.<\/p>\n<p>The stress test can be found\u00a0<span style=\"color: #666699;\"><strong><a style=\"color: #666699;\" href=\"http:\/\/citifmonline.com\/wp-content\/uploads\/2017\/08\/Published.pdf\" target=\"_blank\">here<\/a><\/strong><\/span>.<\/p>\n<p><strong>GCB swallows UT, Capital banks<\/strong><\/p>\n<p>GCB bank was on Monday given the green light to take over UT banks and Capital bank which according to the Bank of Ghana had \u201csevere impairment of their capital.\u201d<\/p>\n<p>BoG further <span style=\"color: #666699;\"><a style=\"color: #666699;\" href=\"http:\/\/citibusinessnews.com\/index.php\/2017\/08\/14\/ut-capital-bank-collapse-gcb-to-the-rescue\/\"><strong>revoked<\/strong><\/a><\/span> the licenses while the Ghana Stock Exchange (GSE) also suspended the listing status of UT Bank.<\/p>\n<p>The GSE noted that UT Bank failed to publish its financial results since December 31, 2015.<\/p>\n<p>&#8211;<\/p>\n<p>&nbsp;<\/p>\n<p>By: citifmonline.com\/Ghana<\/p>\n","protected":false},"excerpt":{"rendered":"<p>A stress test of Ghanaian banks conducted by two researchers, Anthony Q. Q. Aboagye and Effa Ahenkora, had predicted that three Ghanaian banks would collapse under severe stress. In a study which assessed the capacity of Ghanaian banks to absorb large but plausible losses resulting from concentration of individual bank loan portfolios in key sectors [&hellip;]<\/p>\n","protected":false},"author":14,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[32,10,11],"tags":[793,10175,9234,3,10259,10177],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Researchers predicted Ghanaian banking crises - Citi 97.3 FM - Relevant Radio. 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