Halting dividend payments to shareholders necessary to protect banks – Banking consultant

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Banking Consultant, Nana Otuo Acheampongm says the Bank of Ghana has the power to undertake periodic assessment of the financial sector to protect depositors’ funds as the country fights the COVID-19 disease.

His assertion follows a directive by the central bank to all banks and Specialized Deposit Institutions (SDIs), to desist from declaring and paying any dividends or distributing reserves to shareholders.

Explaining the rationale behind such a move, Nana Otuo Acheampong said the Bank of Ghana is planning against shocks that may disrupt the financial sector as the world struggles to contain the spread of COVID-19.

“When you return profit to shareholders, effectively you are reducing your capital fund and the destruction we are witnessing with this pandemic means that if you decide to return profit to shareholders and use your capital buffer, in case of any crisis where some loans go bad and so on you don’t have any capital to fall on. So, it is in your interest to ensure that you don’t return those capital to shareholders because if you do, you will probably end up with no bank at all. And having your company in existence is more preferable to collapsing it because you have to return profit to shareholders. So, the balance sheets of banks are supposed to be reinforced to help cope with the destruction,” he stated.

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In its quest to mitigate the economic impact of the novel Coronavirus on Ghanaians, the Bank of Ghana last month, directed all financial institutions operating in the country to take adequate steps to help curtail the spread of the coronavirus COVID-19.

BoG to sanction banks, other SDIs for misuse of incentives amidst COVID-19 pandemic

Also, the Bank of Ghana last month, announced that it will not fail to sanction banks and other Specialized Deposit Taking Institutions (SDIs) that fail to efficiently utilize its interventions to increase their liquidity to contain the impact of the coronavirus pandemic.

The central bank also announced some major reviews to make it possible for banks and other SDIs to have enough liquidity to sustain their operations.

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