Bank of Ghana has approved a zero-risk weighting of credit exposures covered by GIRSAL’s Credit Guarantee Scheme. This gives Participating Financial Institutions (PFIs) the stand to immensely benefit from this development.
What does the Zero Credit Risk Weight Mean for GIRSAL and its Partner Financial Institutions?
This is a major milestone for GIRSAL because it indicates the credibility and confidence the Central Bank assigns to GIRSAL’s CRG scheme and provides GIRSAL with a bargaining tool in its dialogue with financial institutions.
A Financial Institution with credit exposures guaranteed by GIRSAL means that such credit exposures get excluded from the total risk-weighted assets and improves the FI’s Capital Adequacy Ratio (CAR).
The approval from BoG is expected to make the guarantee more attractive to financial institutions with the ultimate objective to increase lending to the agricultural sector.
This approval is a means by GIRSAL to inform financial institutions to trust the CRG scheme to improve CAR and encourage them to sign up for it. By this, GIRSAL expects to stimulate more lending to the Agric sector.
According to Brian Beers, the capital adequacy ratio (CAR), also known as the capital to risk-weighted assets ratio, measures how much capital a bank has available, reported as a percentage of a bank’s risk-weighted credit exposures. The purpose is to establish that banks have enough capital on reserve to handle a certain amount of losses before being at risk of becoming insolvent.