Don’t risk progress with new reforms – IERPP cautions BoG

Professor Isaac Boadi is the Dean of the Faculty of Accounting and Finance at UPSA. He also serves as the Executive Director of the Institute of Economic Research and Policy (IERPP). He acknowledges that Ghana’s banking sector has improved in stability and transparency. However, he warns that the Bank of Ghana (BoG) must be cautious with new regulatory reforms. These reforms could unintentionally harm progress.

“Regulations must safeguard stability, not choke growth,” Prof. Boadi said. He urges a phased, data-driven approach to implementing these reforms.

The BoG's new regulatory framework addresses key banking operations. This includes reserve requirements, digital lending, and crypto oversight. While some measures are promising, IERPP's review points out areas needing attention.

One new measure is the Dual-Currency Reserve Requirement starting June 5, 2025. Banks will need to hold reserves in both domestic and foreign currencies. This may help reduce forex volatility but could limit credit if thresholds are too high. IERPP suggests a gradual rollout to avoid liquidity issues.

Another measure caps Cross-Currency Card Transaction Fees at 2%. This limits fees on international card transactions to 2%. It will lower costs for users but might hurt bank revenues. IERPP recommends a tiered fee system for flexibility while protecting consumers.

The BoG will also require Mandatory Disclosure of Issuer Fees. Banks must show all fees upfront during transactions. This enhances transparency but needs standardization to avoid confusion, according to IERPP.

Additionally, there will be No Interest on Inactive Credit Accounts. This prohibits interest on dormant accounts, protecting consumers but possibly limiting credit access for banks. A clear definition of “inactive” is necessary, such as six months without activity.

Digital Lending Guidelines are expected by August 2025 due to market growth in this area. Regulations are essential but overregulation could hinder innovation. Stakeholder consultations are crucial for finding balance.

The BoG plans to cap Non-Performing Loan (NPL) ratios at 10% by December 2026. Currently, Ghana’s NPL ratio stands at 14.5%. Enforcing this cap suddenly may lead banks to aggressive write-offs and less credit availability. A phased approach with performance incentives is recommended by IERPP.

Local Governance standards for Foreign-Owned Banks will also be introduced by BoG. Foreign banks must meet local governance standards like having independent boards. While this can improve accountability, it may increase costs and deter investment since foreign banks hold 40% of banking assets.

Furthermore, banks will undergo a Review of Pricing Models under BoG's initiative. They must simplify and justify their fees to build trust with customers while ensuring compliance through regular audits.

Another initiative focuses on Public Listing of Blacklisted Borrowers requiring banks to publish defaulter lists publicly. While this promotes discipline among borrowers, privacy safeguards are necessary to prevent legal risks.

Lastly, the BoG aims to strengthen Anti-Money Laundering (AML) rules for crypto transactions. Tighter regulations can reduce illicit finance risks but may stifle crypto growth as well.

IERPP appreciates the BoG’s commitment to financial integrity and resilience but emphasizes careful execution of reforms through consultation.