BANK OF GHANA PROPOSES 30 DAY LIQUIDITY BUFFER AS ALL 23 BANKS COMPLETE POST DDEP CAPITAL RECOVERY

The Bank of Ghana is moving to require commercial banks to maintain enough readily available high quality liquid assets to survive 30 days of severe financial stress without relying immediately on emergency funding, introducing a new liquidity standard as the banking industry completes a major capital recovery from the losses associated with Ghana's Domestic Debt Exchange Programme.

The proposal is contained in a Liquidity Coverage Ratio Directive released by the central bank as an exposure draft for consultation with banks, industry participants and the wider public. Under the proposed framework, every bank would be required to maintain a Liquidity Coverage Ratio of at least 100 percent, meaning the value of eligible high quality liquid assets available to the institution must be sufficient to cover its projected net cash outflows during a 30 calendar day stress period.

The Bank of Ghana published the draft on October 9 and has given stakeholders until November 30 to submit comments before the rules are finalized. The consultation forms part of a broader regulatory program aimed at strengthening Ghanaian banks against sudden deposit withdrawals, disruptions to wholesale funding, market shocks and other events that could place intense short term pressure on their ability to meet financial obligations.

The proposed rule is designed around a relatively straightforward principle. A bank can appear profitable and adequately capitalized while still becoming vulnerable if too much of its money is locked in assets that cannot quickly be converted into cash when depositors or creditors demand payment. The central bank therefore wants institutions to maintain a dedicated stock of liquid assets capable of absorbing a sharp deterioration in funding conditions for at least one month.

Under the proposed framework, qualifying high quality liquid assets would have to be unencumbered and capable of being converted into cash quickly and with little or no significant loss of value. The precise treatment of assets, expected cash inflows and projected cash outflows will be governed by the final directive, but the core requirement is that the available liquidity buffer must equal or exceed the net amount a bank could reasonably expect to lose during the prescribed stress scenario.

A ratio of 100 percent would therefore indicate that a bank has enough qualifying liquid assets to cover all projected net cash outflows over the 30 day period. A higher ratio would represent a larger cushion, while a figure below the regulatory threshold would indicate that the institution did not have the minimum buffer required under the framework.

The planned directive reflects international banking standards developed after the global financial crisis, when regulators discovered that some financial institutions that appeared solvent could still fail rapidly once customers and counterparties began withdrawing funds. Liquidity rules were subsequently strengthened internationally to require banks to maintain assets that could be converted into cash during periods of extreme stress instead of relying on the assumption that market funding would always remain available.

For Ghana, the timing of the proposed requirement is significant because the banking sector has only recently completed a difficult recovery from the financial effects of the Domestic Debt Exchange Programme. The restructuring of domestic government debt generated substantial impairment losses for banks and other financial institutions that held large portfolios of government securities, weakening capital positions across the industry.

Bank of Ghana Governor Johnson Pandit Asiama said 13 banks breached regulatory capital requirements when their 2022 audited financial statements reflected the impact of the economic crisis and losses associated with the debt restructuring. Banks were subsequently required to restore their capital positions through a combination of retained earnings, fresh shareholder contributions, government support and other approved capital restoration measures.

The central bank now says all 23 banks operating in Ghana have returned to compliance with regulatory capital requirements. Asiama described the recovery as a significant achievement resulting from combined efforts by banks, shareholders, investors, the Ghana Association of Banks, the government and the Bank of Ghana.

The recovery is visible across several banking indicators. Total assets in Ghana's banking industry reached approximately GH¢500.2 billion at the end of August 2026, up from about GH¢415.2 billion a year earlier. The sector's Capital Adequacy Ratio also strengthened from 18.28 percent in August 2025 to approximately 19.10 percent in August 2026, comfortably above the regulatory minimum of 13 percent.

Asset quality has also improved, although bad loans remain a major concern. The industry's Non Performing Loan ratio declined from 20.77 percent in August 2025 to 15.66 percent in August 2026. The improvement is substantial, but the ratio remains above the Bank of Ghana's prudential target of 10 percent, which banks have been instructed to reach by the end of December.

Asiama has cautioned banks against treating the restoration of capital as the end of the restructuring process. His position is that stronger balance sheets must now be supported by sustainable business models, effective risk management, better credit decisions and sufficient protection against future economic shocks.

The proposed liquidity requirement forms part of that next phase. Capital and liquidity perform different functions in banking regulation. Capital provides a financial cushion against losses that could undermine a bank's solvency, while liquidity determines whether the institution can continue meeting immediate cash obligations when depositors, businesses or other counterparties seek access to their money.

A bank can therefore satisfy capital requirements while still facing liquidity difficulties if its assets cannot be converted into cash quickly enough during a period of stress. The proposed Liquidity Coverage Ratio is intended to reduce that vulnerability by establishing a common minimum standard across the industry.

Bank of Ghana stress testing has already demonstrated why the distinction matters. The central bank's Financial Stability Review found that liquidity risk in the banking industry remained generally contained, particularly when government securities could be sold in a functioning secondary market. However, the tests also showed that some banks would become considerably more vulnerable during sustained deposit withdrawals if government bonds became difficult to sell.

In one stress scenario, all 23 banks were able to survive the baseline position when government securities were assumed to remain liquid. Twenty three also survived daily deposit withdrawals of one percent, while 22 survived withdrawals of two percent and three percent. The number fell to 21 under four percent daily withdrawals.

The results became significantly weaker when government securities were assumed to be completely illiquid. Under that scenario, 22 banks survived daily withdrawals of one percent, 21 survived two percent withdrawals, 17 survived three percent withdrawals and only 11 survived four percent daily withdrawals over the stress period.

Those results do not mean Ghanaian banks are currently experiencing bank runs. They are simulations designed to measure how the financial system could perform under extreme but plausible conditions. The difference between the scenarios nevertheless demonstrates how strongly bank resilience can depend on whether assets classified as valuable on a balance sheet can actually be sold quickly when cash is urgently needed.

The new directive seeks to make that resilience less dependent on favorable market conditions by requiring a minimum quantity of assets that meet stricter liquidity standards. That could give depositors, businesses and regulators greater confidence that banks would remain capable of making payments even if markets became temporarily disrupted.

The requirement could also influence how banks structure their balance sheets. Institutions may have to reconsider the proportion of assets held in highly liquid instruments compared with longer term loans and investments. Maintaining a larger liquidity cushion can improve financial safety, but it can also create costs because the safest and most liquid assets may generate lower returns than commercial lending or other investments.

Banks will therefore have to balance profitability with resilience. A lender that holds too much idle liquidity may sacrifice income and reduce the resources available for credit, while one that pursues higher returns without maintaining enough liquid assets could become vulnerable when funding conditions change suddenly.

That tension is one reason the central bank has released the directive for consultation rather than implementing it immediately. Banks and other stakeholders can use the consultation period to raise concerns about the classification of eligible assets, the calculation of expected cash flows, reporting requirements and the potential effect of the rule on credit and funding markets.

The November 30 deadline gives the industry several weeks to assess the proposed framework and submit recommendations. The Bank of Ghana can then revise the rules before issuing the final directive, although the central principle requiring banks to maintain enough high quality liquid assets to cover 30 days of stress is unlikely to change substantially.

The liquidity proposal is part of a wider regulatory push by the central bank. The Bank of Ghana has also been developing new rules on credit risk management, recovery planning, stress testing, corporate governance disclosure and liquidity monitoring as it attempts to preserve improvements made since the domestic debt restructuring.

Credit risk remains particularly important because high levels of non performing loans can erode bank profitability and eventually weaken capital. The central bank has instructed financial institutions to strengthen credit assessment, monitor borrowers more closely and improve loan recovery as part of efforts to bring bad loans toward the 10 percent prudential threshold.

The Bank of Ghana has also conducted reviews of the long term viability of banks' business models. Vulnerabilities identified through those reviews have been communicated to individual institutions, with the regulator engaging boards and senior management on measures needed to improve sustainability. Another round of business model analysis is expected in 2027.

For customers, the proposed liquidity rule is ultimately intended to strengthen confidence that deposits remain accessible during difficult periods. It does not guarantee that a bank could withstand every conceivable crisis, but it creates a minimum buffer designed to give institutions and regulators time to respond before short term pressure develops into a deeper financial emergency.

The requirement also reduces the likelihood that the Bank of Ghana would have to become the immediate source of liquidity whenever an institution experiences funding stress. Central banks typically operate emergency liquidity facilities for solvent financial institutions facing temporary cash problems, but regulators generally prefer commercial banks to maintain adequate private buffers before turning to central bank assistance.

Ghana's recent financial history gives added weight to that approach. The country has experienced a major banking sector cleanup, a sovereign debt restructuring and a period in which losses on government securities significantly weakened financial institutions. Those episodes demonstrated the interconnected nature of government finances, bank balance sheets and public confidence.

The DDEP was particularly significant because government securities had traditionally been viewed by banks as relatively safe investments. When those assets were restructured, institutions had to recognize substantial accounting losses, showing how sovereign financial stress could quickly affect bank capital.

The restoration of all 23 banks to regulatory capital compliance represents a major step away from that period, but the Bank of Ghana has made clear that compliance alone should not be interpreted as an absence of risk. High non performing loans, cybersecurity threats, concentration risk, interest rate movements and potential future liquidity shocks remain issues requiring continued supervision.

The banking sector's expansion also increases the importance of effective regulation. With total assets now exceeding GH¢500 billion, disruption at a major bank could have consequences extending beyond its shareholders to depositors, businesses, payment systems and the wider economy.

The proposed Liquidity Coverage Ratio therefore represents both a response to past vulnerabilities and an attempt to prepare for risks that may not yet have emerged. By requiring banks to model a severe 30 day funding shock and maintain sufficient liquid assets beforehand, the regulator is seeking to make crisis preparedness a routine part of balance sheet management rather than an emergency response undertaken after pressure has already developed.

The consultation process will determine some of the most important operational details, including the assets that qualify for the buffer and how different categories of deposits and funding are treated when calculating expected outflows. Those technical decisions could significantly affect individual banks depending on their customer base, investment portfolio and funding structure.

The rule could prove more demanding for institutions that rely heavily on funding considered vulnerable to sudden withdrawal, while banks with stable retail deposits and substantial holdings of qualifying liquid assets may already operate close to or above the proposed standard. The Bank of Ghana will have to ensure that implementation strengthens resilience without creating unnecessary disruption to credit supply or financial intermediation.

The broader condition of the banking sector gives the regulator greater room to introduce the requirement now than it had immediately after the DDEP. Capital positions have recovered, profitability and liquidity indicators have improved, and all 23 banks have returned to regulatory capital compliance. The central bank is therefore shifting its focus from repairing damaged balance sheets toward strengthening the system against the next potential shock.

That transition does not mean the post DDEP recovery is complete in every respect. The level of bad loans remains above the regulatory objective, some banks remain more exposed to liquidity stress than others and the performance of government securities markets continues to influence the industry's resilience. Those weaknesses explain why the Bank of Ghana is simultaneously tightening several areas of prudential supervision.

The immediate next stage will be the consultation ending November 30. Banks, financial sector professionals and members of the public can submit views on the exposure draft before the central bank determines the final requirements and implementation schedule.

Once finalized, the Liquidity Coverage Ratio will give the Bank of Ghana another tool for measuring whether banks are prepared to withstand sudden funding pressure. Combined with restored capital positions, tighter credit risk controls and continuing supervision of non performing loans, the directive represents the next phase of Ghana's effort to rebuild a banking system that can absorb financial shocks without placing depositors or the wider economy at unnecessary risk.

The significance of the proposal will ultimately depend on how effectively it is implemented and how banks adjust their balance sheets in response. Ghana's banks have moved from widespread capital breaches after the DDEP to full regulatory capital compliance, but the central bank's latest action signals that recovery is no longer enough. The new priority is ensuring that institutions remain liquid, resilient and capable of meeting customer obligations even when financial conditions deteriorate sharply.