Ghana: Economist Calls for More Details on Gov’t Bailout to Indigenous Banks

Professor at the University of Cape Coast (UCC), John Gatsi

Accra, Ghana, January 2, 2019//-A renowned economist and Professor at the University of Cape Coast (UCC), John Gatsi, has called on the government to provide more details on its GHC2billion bailout to the six indigenous banks which could not meet the minimum capital requirement which elapsed on 31st December 2018.

According to him, more details about the bailout are needed to enable the taxpayers whose taxes have been used to bailout the banks know.

Just yesterday, the six banks had agreed to relinquish part of their stakes to the government in return for equity investment from the state to enable them to recapitalise to ¢400 million.

This paves the way for the government to set in motion processes that will allow it to invest a total of ¢2 billion in the six banks by March 2019.

The six indigenous which are benefiting from the bailout package are- ADB Bank, National Investment Bank (NIB), Prudential Bank, Universal Merchant Bank Limited (UMB), Heritage Bank Limited, and OmniBank Limited.

In September 2017, the Bank of Ghana (BoG) announced the new minimum paid-up capital requirement, as part of a holistic financial sector reform plan to further develop, strengthen, and modernize the financial sector to support the government’s economic vision and transformational agenda.

The GH¢400 million minimum capital requirement which is a 233 percent increase over the previous GH¢120 million benchmark, according to the Central Bank is to create stronger banks that can drive the Country’s economic growth by undertaking big ticket transactions.

Bailout is not free money

 Prof Gatsi explained: “A government bailout to local banks is not free money, therefore should necessarily and indeed be accompanied by management and board restructuring”.

However, the government should also indicate to workers of the recipient local banks whether or not this bailout will be followed by retrenchment and other labour rationalization measures, he added.

Approach to protect local banks

This approach to protect local banks was the prudent approach proposed to government and BoG since 2017 but both government and BoG refused.

“The refusal deepened the difficulties of these banks over the period. The greatest challenge created by the approach used by the BoG and government is low confidence leading to unending panic withdrawals”, Prof Gatsi told Radio Gold, an Accra-based radio station.

He continued: “Most of these banks are now in liquidity and confidence trap. It is unfortunate these banks and their workers have to suffer the worse form of psychological trauma before this bailout which was suggested long ago  as a solid  alternative”.

Skewed benefits about the bailout

“Those who follow the developments in the financial sector will not question the principles of transparency, disclosures and skewed benefits about the bailout.

It is surprising that Agricultural Development Bank which announced that, the bank has now met the new minimum capital requirement is also receiving the said bailout to capitalize”.

Something must be wrong as BoG and Ministry of Finance are to be part of the board and shareholders who met to arrange for the recapitalization, he said.

Some of the local banks with BoG and government of Ghana shareholding in excess of 90% should have met the new minimum capital by offloading about 39% to private sector long ago to capitalize.

A call by BoG to recapitalize is actually a call on shareholders to capitalize their banks. It also means a call on BoG and government of Ghana to recapitalize banks in which they own shares, Prof Gatsi who is also the Head of Finance Department of the UCC Business School, explained.

He questioned why BoG and government had not complied with their own directive to capitalize.

Gov’t needs to review single treasury account policy

Prof Gatsi used the occasion to call on the government to review the approach to its single treasury account policy which had moved funds of some state institutions from local banks.

“The review to reverse a certain proportion of such funds back to the local banks will contribute to activating liquidity trust and restoration of confidence among local banks”.

Prompt payments of arrears especially to government contractors both past and current can revive liquidity and credit in the banking system, he suggested.

“Government must work assiduously to close the chapter on the financial sector to free the sector to effectively regain its role in real sector activities”, Prof Gatsi advised.

List of successfully recapitalised banks in Ghana

  1. Access Bank Ghana Limited
  2. Barclays Bank Ghana Limited
  3. CAL Bank Limited
  4. Consolidated Bank
  5. Ecobank Ghana Limited
  6. FBNBank Ghana Limited
  7. Fidelity Bank Limited
  8. First National Bank Ghana Limited (FNB)
  9. Republic Bank Ghana Limited
  10. GCB Bank Limited
  11. Guaranty Trust Bank Ghana Limited (GTBank)
  12. Society Generale Ghana Limited
  13. Stanbic Bank Ghana Limited
  14. Standard Chartered Bank Ghana
  15. United Bank for Africa Ghana Limited (UBA)
  16. Zenith Bank Ghana Limited

Not recapitalised but being supported

  1. ADB Bank
  2. National Investment Bank (NIB)
  3. Prudential Bank
  4. Universal Merchant Bank Limited (UMB)
  5. Heritage Bank Limited
  6. OmniBank Limited

Ongoing mergers

  1. Energy Commercial Bank Ghana Limited and First Atlantic Bank Limited
  2. OmniBank and Sahel Sahara Bank

Ongoing takeovers

First National Bank Ghana Limited (FNB) takes over GHL Bank

Voluntary liquidation

Bank of Baroda (customers absorbed seamlessly by Stanbic Bank Ghana Limited)

Not recapitalised but no credible news yet

  1. Bank of Africa Ghana (BoA) Limited
  2. GN Bank Limited
  3. Premium Bank Limited

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