Economist to BoG: Deal with Banking Sector Liquidity to Stimulate Economic Activity  

Prof John Gatsi. renowned economist at the University of Cape Coast, Ghana

Accra, Ghana, January 5, 2019//-A renowned economist and Professor at the University of Cape Coast (UCC), John Gatsi, has called on the Bank of Ghana (BoG) to deal with the country’s banking sector liquidity challenge to stimulate economic activity.

According to him, the banking sector reforms are not completed without the BoG restoring liquidity in the sector.

Commenting on the BoG’s announcement that it had drawn curtains down on its 20-month long banking sector reforms, leading to the pruning of universal banks from 36 to 23, Prof Gatsi, said: “The core purpose of banking sector reform is not about reducing the number of banks”.

He explained: The main purpose is to ensure solid, sound and stable banking sector that can deliver sustainable financial services to households, private sector and government while ensuring confidence within the framework of good corporate governance”.

There is massive illiquidity because illiquid bonds were issued to support the process. This has made newly formed Ghana Consolidated Bank (GCB) not meeting the demands of depositors, he told African Eye Report.

Prof Gatsi maintained: “Meeting the minimum capital is not the same as liquidity of banks. The business is potent when liquidity is solid and the health of an economy is driven largely by liquid banking sector”.

He noted that some banks had met the requirements through mere booking transactions, stressing that; “the work is about ensuring a kind of corporate governance that does not undermine banking services” in the country.

The work ahead is about ensuring banking sector liquidity. Without liquidity economic activities are still at risk, Prof Gatsi who is also the Head of Finance Department at the UCC Business School, stated.

Downgrade is not liquidity

Touching on the downgrading of some banks, he said: “Telling customers and stakeholders what a particular decision actually means is always difficult to regulators and firms affected”.

Prof Gatsi explained: “A downgrade from universal banking to savings and loan only prevents the bank from certain transactions. The transition from universal banking to savings and loan company, to a large extent does not negatively affect the spread of branches in the country”.

However, the company can restructure to reduce the number of branches, he noted.

“Therefore downgrade or transition means removal from maybe division one football club to division two but they all remain football teams. It is a less harmful punishment”.

But it is not the solution to the most important challenge of suffering from illiquidity. This implies all those indebted to any downgraded bank including government must still pay to improve liquidity situation and indicate confidence to depositors, he advised.

Prof Gatsi added: “Management should continue to appeal to depositors who do not need their money now to disengage the demand for deposits trigger.

In brief downgrade is not liquidity. Restoring liquidity is the greatest tool to sustain even savings and loan businesses”.

African Eye Report

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