The Bank of Ghana has revealed that liquidity risk remains well-contained in the banking industry, provided the Government of Ghana (GoG) bonds are liquid.
According to the Central Bank, the stress test indicated that most banks would survive daily deposit withdrawals of 1.0% to 4.0% over 30 days if the GoG bonds market was liquid.
However, most banks would not survive a run of more than 1.0% of daily deposit withdrawals for 30 days if the GoG bond market is illiquid.
Interest Rate Risk
The banking sector appears robust against interest rate risk.
The results of a stress test showed that a 16.0 percentage point increase in interest rates persisting over the next year may lead to a decline in the Capital Adequacy Ratio (CAR) from a post-Eurobond restructuring level of 13.85% to 11.57%.
The report stated that an extreme decline in interest rates may improve the solvency conditions in the banking sector, given that more liabilities would reprice over the one-year horizon compared to assets. Accordingly, a steady decline in interest rates is expected to improve the solvency conditions in the banking industry.
Exchange Rate Risk
The Bank of Ghana noted that exchange rate fluctuations have a minimal impact on solvency conditions in the banking sector.
The test results indicate that an unexpectedly large movement of the Ghana cedi against the US dollar may have minimal direct impact on the solvency of banks, reflecting the existing limits on the Net Open Position (NOP) within the banking industry.
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