Accra, Ghana, August 24, 2019//-Former Second Deputy Governor of the Bank of Ghana (BoG), Dr Johnson Asiama has punched more holes in the recently completed financial sector cleanup exercise undertaken by the Addison-led management.
According to him, the previous management of the BoG had put in place measures to safeguard the sector from the current challenges.
To this end, Dr Asiama revealed that; “there was a roadmap (or strategy) for the recapitalization banks and withdrawal of liquidity and hence these should have been followed”.
For instance, he said that if Unibank’s claims on government were paid early in 2017, we could have prevented the daily clearing failures that persisted and worsened the early redemptions and withdrawal of deposits.
“It is a fact that I drew the Governor’s attention on this and we indeed had a meeting with the Finance Minister on the particular issue somewhere in May\June 2017.
Unfortunately, our view was not taken and hence the daily clearing failures continued, leading to additional liquidity support”.
“Key among these was the thinking at the time to encourage indigenous local banks to also feature in the banking landscape”, Dr Asiama stated in a statement issued after granting an interview to an Accra-based radio station.
He explained the macroeconomic challenges (2014-2015) that impacted the banking industry as a whole, and the effort in introducing ESLA to help prevent a slide into insolvency by many of the banks.
Dr Asiama added that if after that the ESLA plc bond had been supported by a government guarantee, all the GHS10 billion exposures to the banks would have been secured to prevent the slide into insolvency.
If an additional special levy was introduced in early 2017 to pay off contractors, this also would have supported the latter and prevent the slide into insolvency in some of the cases, he further revealed.
Dr Asiama further explained that a lot of engagements were done with the eight banks that were identified in the Asset Quality Review (AQR) exercise in 2015, and different scenarios were developed and discussed with the Board of these banks. Therefore it is not true that we did nothing, he stated.
According to him, if the extent of interconnectedness was taken into account from the beginning of the exercise, systemically important banks such as Unibank would have been handled differently through any of the ways mentioned above.
For instance that at best “we would have engaged Republic Financial Holdings on the troubled banks because I remember they wanted to purchase up to five banks.
Remember this would have been done much earlier and not in 2018 or beyond when the gap between the value of net assets and the deposit liabilities had deteriorated further”.
The former Second Deputy Governor added that the previous BoG management had a strategy for the recapitalization of banks in general and the fact that they were implementing the Internal Capital Adequacy Assessment Process (ICAAP) framework to support this across the banking sector.
He concluded that his intention was not to spite anyone or the current management of the Bank of Ghana, but to correct some of the misconceptions in the discourse regarding the reforms.
“I must affirm that whatever decision was taken was based on the evidence available at the time and with a clear exit strategy in mind”.
Rebuttal from BoG
However a statement issued by the Governor Addison-led management said: “UT Bank and Capital Bank were among the banks that were found to be insolvent after the May 2015 and June 2016 Asset Quality Review (AQR).
The two banks had ample opportunity after the AQR to raise the needed capital to restore capital adequacy to the regulatory minimum but failed to do that”.
“We have no evidence on record to show that the previous management took steps to mitigate the risk of ultimate failure of these institutions, as it was required to do under the Banks and Specialized Deposit-Taking Institutions Act, 2016, Act 930 which came into effect as far back as in September 2016”.
In the face of the AQR results, a number of measures should have been taken by the previous management to ensure that the implicated banks were not taking on additional risks or dissipating assets at the expense of their depositors and other claimants and creating risks for the entire financial system, the statement said.
While under Ghana’s Extended Credit Facility (ECF) programme with the IMF which started in 2015, the IMF provided recommendations on how the banks determined to be distressed under the AQR were to be handled to avert a financial crisis, the then management of the Bank of Ghana failed to implement these actions that would have halted the eventual collapse of a multitude of financial institutions.
Completion of clean-up of the banking, SDI, NBFI sectors
The Bank of Ghana has with effect from 16th August 2019, completed the clean-up of the banking, specialized deposit-taking (SDI), and non-bank financial institutions (NBFI) sectors which began in August 2017.
This follows the revocation of the licences of nine (9) universal banks, 347 microfinance companies (of which 155 had already ceased operations), 39 micro credit companies/money lenders (10 of which had already ceased operations), 15 savings and loans companies, eight (8) finance house companies, and two (2) non-bank financial institutions that had already ceased operations.
However economists and industry experts said the revocation of these licences had created massive unemployment as thousands of jobs had been lost in the country which the government denied.
The BoG earlier said it was committed to ensuring that the banking, SDI, and NBFI sectors remain resilient, inclusive, and supportive of Ghana’s economic growth trajectory.
To ensure that the remaining institutions remain resilient going forward, the Bank of Ghana will remain vigilant, intensify on-site examinations and enforcement actions including the application of sanctions for non-compliance with statutory, prudential and other requirements, and ensure that early warning signs of distress are mitigated by regulated institutions expeditiously.
Also, the central bank would work with ARB Apex Bank to reposition the rural and community banking sector, to enable them to better support rural economic development. Furthermore, the Bank of Ghana and the Government of Ghana will also launch the commencement of operations of the Ghana Deposit Protection Scheme in September 2019 to further strengthen protection of depositors’ interests.
By Masahudu Ankiilu Kunateh, African Eye Report
