Accra, Ghana, March 26, 2018//-Since August 2017, three major Ghanaian banks have collapsed while many others are on life support plans at the time when Ghana’s economy is said to be one of the fastest growing economies in the world.
The country’s economic growth is increasing, from 3.6% at December 2016, to 7.9% in 2017, and it is expected to grow 8.3% this year, according to World Bank. But this growth is not inclusive one.
Explaining this strange economic development to African Eye Report, a renowned Economist at the University of Cape Coast, Professor John Gatsi, said: “There are two important concerns about the Ghanaian economy. One is skewed and noninclusive growth in favour of the natural resource sector which does not provide the benefit of economic growth to citizens”.
“Second concern is that while recording growth, businesses in education delivery and financial sector are collapsing. Most private Senior High and tertiary schools may also collapse soon”.
Prof Gatsi further explained: “Growth only provide opportunities for banks to do business in supporting households and businesses as well as government policies”.
The Bank of Ghana (BoG) disclosed that rural and community banks have also collapsed or under distressed. Same applied to micro finance institutions”.
Some three commercial banks have gone and some are still on the way. So what type of growth is this? Prof Gatsi questioned. Perhaps growth in disaster, he said.
Prof Gatsi lamented: “The collapse of financial sector businesses have serious implications for proper and orderly financial intermediation”.
Another factor maybe excessive recording of nonperforming loans as a result of very high lending rates associated with loans which are mainly short term create continuous default of loans, he said.
“To sustain meaningful growth, the financial sector should be strong and stable to raise funds to engage in asset transformation and intermediation”.
He urged the Central Bank to be firm , fair and innovative, saying: “Publishing the problems in the financial sector which is known through a comprehensive audit since 2016 is informative but not the solution”.
They only strengthen default rate, weak deposits mobilization and lower confidence. Appealing to customers when actions are not clear to the public is not a solution, according to the University of Cape Coast professor.
Prof Gatsi suggested: “If the trend continues an economic forum focusing on the financial sector and growth distribution of the economy in non political manner that will harness innovative set of suggestions from businesses, consultants, academia and other sections of the economy should be organised”.
“Let us not be deluded into thinking that BoG has some magic to solve the problems because most of the problems are caused by factors controlled by the government”.
BoG is not the one engaged in excessive borrowing per the warning by IMF, Institute for Fiscal Studies (IFS) and ordinary Ghanaians, it is government. It is not BoG that failed to meet its obligations to various contractors and suppliers with direct effect on the financial sector, Prof Gatsi noted. He therefore maintained that the solution of the current crisis could not be the job of BoG alone.
Prof Gatsi added: “Proper regulatory oversight guided by principles base monitoring by regulators and implementation of corporate governance requirements in the appointments of boards and top management teams as well as ensuring that banks do businesses in line with their strength. The weakness or absence of these requirements could account for collapse of banks in the midst of growth”.
Collapsed banks and more to follow
In August 2017, the Bank of Ghana (BoG) revoked the licences of two indigenous Ghanaian banks-UT Bank and Capital Bank and at the same time approved a Purchase and Assumption (P&A) agreement, allowing GCB Bank to take over all deposit liabilities and selected assets of both banks.
These actions are in line with the provisions of section 123 of the Banks and Specialised Deposit Taking Institutions (SDIs) Act, 2016 (Act 930).
The BoG explained to journalists that the two banks were deeply insolvent, meaning that their liabilities exceeded their assets, putting them in a position not to be able to meet their obligations as and when they fell due.
Despite repeated agreements between the BoG and UT Bank and Capital Bank to implement an action plan to address these significant shortfalls, the owners and managers of UT Bank and Capital Bank were unable to increase the capital of the banks to address the insolvency.
The uniBank’s troubles
Eight months after the collapse of the two banks, the licence of another promising indigenous Ghanaian-uniBank has technically been revoked amidst public outcry in the West African country.
The BoG in exercising its powers under Sections 107 and 108 of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930) has, effective 20th March 2018, appointed KPMG as Official Administrator for UniBank Ghana Limited (UniBank).
Section 107 of Act 930 empowers the Bank of Ghana to appoint an Official Administrator to take official control of a bank when its capital adequacy ratio (CAR) has fallen below 50% of the required minimum of 10% (i.e. below 5%).
Under section 108 of Act 930, the Official Administrator is authorized to exercise a variety of powers to rehabilitate and return the bank to regulatory compliance within a period of six months, at the end of which the bank will be returned to private ownership and management.
The appointment by the BoG of the official administrator is aimed at saving UniBank from imminent collapse. It will prevent potential losses to depositors and other creditors, and ensure that the financial condition of the bank does not create further risks for the entire financial system, according to the Governor of BoG, Dr Ernest Addison.
He added that KPMG as Official Administrator would assume control of the bank and all its branches and carry out the responsibilities of the shareholders, directors, and key management personnel of UniBank with effect from today 20th March 2018 .
In line with its powers under Act 930, KPMG would ascertain the state of the bank’s assets and liabilities, and exercise a variety of powers under Act 930 to rehabilitate and return the bank to regulatory compliance and viability within a period of six months, at the end of which the bank would be returned to private ownership and management.
During the period of official administration of UniBank, the bank would remain open for business under the management and control of KPMG overseen by the Bank of Ghana, and is not being closed and liquidated, Dr Addison assured.
“UniBank’s problems are part of the legacy issues in the financial sector attributed to weak economic growth and poor corporate governance and risk management practices.
Problems in the financial sector
Poor banking practices, coupled with weak supervision and regulation by the Bank of Ghana has significantly undermined the stability of the banking and other non-bank financial institutions and some of the consequences are—revocation of licenses of two banks while other banks were placed under comprehensive capital restoration plans.
The problems in the financial sector also reflected in the Microfinance( MFI) subsector comprising microfinance companies (MFCs), money lending companies (MLCs) and financial nongovernmental organisations (FNGOs), and Rural and community banks (RCBs) and the extent of distress in this subsector was characterized by severely impaired capital; inability to meet regulatory capital adequacy requirement; generally low asset quality; and liquidity crises.
These have culminated in threats to depositors’ funds thus eroding public confidence and undermining efforts to promote financial inclusion. Of the total number of 566 licensed MFIs in 2018, 211 are active but distressed or folded up, Dr Addison disclosed.
“Also, out of the total number of 141 RCBs, 37 are active but distressed or folded up. In total, it is estimated that 272 out of the 707 institutions in the sub-sector, representing 38.5% are at risk. This indicates that approximately GHȼ740.5 million is owed to an estimated 705,396 depositors of the distressed or folded up MFIs and RCBs”.
In terms of significance, the deposits under distress form 8.81% and 52.49% of industry total deposits of RCBs and MFIs respectively, he added.
Steps taken so far
While several important steps have been taken by the BoG so far, but a lot remains to be done to restore safety, soundness and stability in the financial sector.
Going forward, the bank governor assured that the BoG would continue to strengthen its regulatory and supervisory framework, and promote confidence in the financial system through the: introduction of the Basel Regulatory Capital Requirement Directive; review of guidelines, directives and regulations to the industry in line with the new; among others.
Furthermore, the BoG would follow the full implementation of the new minimum capital requirements for banks by end December 2018 deadline.
To this end, the BoG, according to Dr Addison would issue guidelines to the industry on compliance with the capital increase directive of 2017 and strictly monitor compliance; address specific risks from high nonperforming loans (NPLs), poor corporate governance and poor risk management systems.
The regulator would also issue directives on corporate governance, risk management (including cyber and information security-related risks); strictly enforce Fit and Proper Guidelines for Shareholders, Directors and Key Management Personnel of Banks and specialised deposit-taking institutions( SDIs) as well as other supervised Non-Bank Financial Institutions to ensure bad behavior is not recycled within the financial sector; strengthen the capacity and resources of the Banking and Supervision Department, undertake a comprehensive review and improvement of all supervisory processes, among others.
Besides, the outlook for the financial sector is positive and the BoG remains committed to promoting strong, viable and stable banks, (SDIs), RCBs, and MFIs to support the country’s growth and development process.
By Masahudu Ankiilu Kunateh, African Eye Repport
Email: mk68008@gmail.com
