Accra, Ghana, July 22, 2019//-High levels of non-performing loans (NPLs), wobbling financial sector, a boisterous central bank, high arrears in power sector, ballooning public debt stock, and upcoming high-tension general election are major challenges that Ghana’s banks are grappling with now to December 2020.
On 4th January this year, the Bank of Ghana (BoG) announced that it completed its aggressive banking sector reforms that had led to the pruning of the country’s banks from 36 to 23.
The BoG also raised minimum capital requirements of the banks believing that it would strengthen the banks, boosting their lending power, promoting mergers, and enhancing good governance. Sites like MoreiraTeam.com who are money lenders have grow in popularity and the loan rates.
Not only would bigger and stronger banks assist with installment loans to help the financing of major government and private sector projects but increase their lending to micro, small and medium enterprises (MSMEs) account for over 60 percent of employment in the West African country.
On that fateful day, the Governor of BoG, Dr Ernest Addison said: “It has been an eventful last twenty months during which the Bank of Ghana has had to take tough but necessary bold steps to clean up the banking sector and to reposition it to support the economic growth and transformation agenda for Ghana”.
However, five months down the lane, Dr Addison said: “The Non-Performing Loans (NPL) ratio has declined from 22.6 percent in June 2018 to 18.1 percent in June 2019. Though still high, the recent decline is in the right direction and banks are still working to intensify their credit risk management practices and loan recovery efforts”.
Still, the banking industry’s Capital Adequacy Ratio (CAR) was estimated at 19.1 percent, significantly higher than the statutory minimum of 10.0 percent, there are some better rates that can be settle online, click here for more info about payday loans in Canada.
The average industry CAR was 16.3 percent when computed in accordance with the new Bank of Ghana Capital Requirement Directive (CRD) under the Basel II/III capital framework, according to the latest Monetary Policy Committee (MPC) of the BoG report.
Asset quality has improved significantly in the banking sector, on the back of write-offs and loan recoveries, it stated.
The banking sector reforms continue to yield results. Provisional data available through the year to June 2019, shows that the banking sector is well-capitalised, solvent, liquid and profitable with improved Financial Soundness Indicators.
At the end of June 2019, banks’ total assets amounted to GH¢112.8 billion, representing an annual growth of 12.5 percent. The increase in total assets was funded mainly from deposits which recorded a strong growth of 22.3 percent year-on-year, the report said.
Problematic GAT
The problematic Ghana Amalgamated Trust (GAT), a special purpose vehicle (SPV) backed by government, was incorporated in December 2018 to raise up to GH¢2billion and invest in five indigenous banks.
The beneficiary banks are the state-owned Agricultural Development Bank (ADB) and National Investment Bank (NIB), as well as Universal Merchant Bank (UMB), Prudential Bank, and OmniBank which has merged with Sahel Sahara Bank.
After tossing the GAT membership banks for over five months, it was in early March this year that the Ministry of Finance laid before the country’s parliament a request for the issuance of a Sovereign Guarantee of up to GH₵2billion in favour of GAT Limited to support the indigenous banks.
The paper was presented to the House by a Deputy Finance Minister, Abena Osei-Asare, and the Speaker of Parliament, Prof. Mike Oquaye, duly referred it to the Finance Committee for consideration and report.
Prof not enthused by the action
But expressing his views at the time GAT was approved by the BoG, Professor John Gatsi of the University of Cape Coast (UCC) argued that by Ghana’s laws, for an institution of the kind to merit and apply for such an approval, the Ghana Amalgamated Trust (GAT) must be created according to Article 192 of the 1992 Constitution, which states that “a Public Corporation shall not be established except by an Act of Parliament”.
This requirement was followed in the establishment of the Ghana Infrastructure Investment Fund and many other Public Corporations. For this reason, GAT cannot be an exception. However, public records, as at today, indicate that GAT, an institution carrying out as a public corporation, is not known to Ghana’s Parliament.
The requirements for approval by parliament in connection with sovereign guarantees, whether full or partial, are such that there MUST be PRIOR parliamentary approval, Prof Gatsi further argued.
He continued: “Public records show that GAT was established and announced at the end of December, 2018 to help capitalize some local banks. Again, GAT has already announced entry into the capital market to issue two tranches of bonds without the required and approved sovereign guarantee”.
Let us also note that any such guarantee must be PRIOR to any attempt to issue bond. Section 66(4)&(5) of the Public Financial Management Act is very clear on this requirement. Section 56(1) of the same Act and Article 181 of the 1992 Constitution also require PRIOR approval of all public borrowings by parliament”, the economist said.
It is very strange
In his own words: “We must also know that compliance with relevant laws reduces political risk associated with bond issuance by public institutions, e.g. GAT. Therefore, it is very strange that GAT has engaged in many violations of Ghana’s laws in its creation, yet has attempted to issue bond”.
The structure of GAT, unknown to Parliament, is to take control over the affected local banks with the power to merge and sell its investment at any time until the 5th year.
The GAT model is problematic because it works as a compulsory acquisition of private property, which is prohibited by Article 20 of the 1992 Constitution, Prof Gatsi told African Eye Report.
This working of GAT does not encourage private investment in the financial services sector as the risk of nationalization seems imminent. So far, there are three nationalizations under the so called banking clean up: the two banks merged with state bank – GCB Bank Limited; five banks consolidated into Consolidated Bank Ghana (CBG); and takeover through GAT model.
Bearing in mind that the controlling interest of GAT in the affected local banks makes GAT a financial holding company, which under section 44(4) & (5) of Act 930 cannot capitalize with borrowed funds. Also, section 9(d) of Act 930 prohibits banks from capitalizing by borrowed funds.
GAT may not last
Ahead of the banking sector reform lies serious legal actions relating to GAT with possible reversals of ownership, compensation and judgment debts as well as public revulsion.
The GAT model does not give clarity regarding stability of ownership of the eventual private owners of these banks. This, obviously, is not good for the financial sector, Prof Gatsi pointed out.
Prof Gatsi who is also a private legal practitioner maintained: “There is the need to seriously revise the current GAT model. If Bank of Ghana could allow the violation of section 9(d) and section 44(4) & (5) of Act 930, these local banks could have equally used the period from September 2017 to December 31st, 2018 to borrow to capitalize.
The way parliament considers GAT and the sovereign guarantee process will define how the banking sector will look like in the near future.
Wobbling financial sector
The financial sector reform has continued with the recent revocation of licenses of 347 insolvent Microfinance companies and 39 insolvent Microcredit companies. Some major banks which have investments blocked up in these companies have started to feel the pinch.
Also, this development has generated a panic movement of assets by investors and depositors to invest in other sectors of the Ghanaian economy. The job losses in the banking and the financial sectors as a result of the rigid reforms are too high to be quantified in monetary interims, according to industry watchers.
Fiscal consolidation under-threat
Recently, the World Bank had warned Ghana that its recent financial sector clean-up would undermine progress made with fiscal consolidation, if domestic revenue mobilization continues to be weak.
In its latest fourth edition of the Ghana Economic Update report launched in Accra on Friday 14, July 2019, it warned: “Fiscal consolidation is expected to slow in 2019 largely to the financial sector clean-up but to remain intact over the medium term”.
The out-gone World Bank Country Director for Ghana, Liberia and Sierra Leone, Henry Kerali who performed the launch added: “Addressing the remaining vulnerabilities in the financial sector is urgent and will require additional efforts in 2019”.
Senior Economist and co-author of the report, Michael Geiger maintained: “An effective domestic revenue mobilization strategy is an urgent priority as the reduction of expenditures, including public investment, in response to revenue underperformances may not be sustainable”.
Ballooning debt
Majority of these banks which financed government projects are yet to be paid. Recent figures released by the Bank of Ghana (BoG) revealed that the government has, within a month, added GH¢1.6 billion to the country’s debt stock.
This brings the country’s total debt (both domestic and foreign) to GH¢200.0 billion, representing 58.1 percent of GDP as at the end of May 2019, up from GH¢198.4 billion (57.6 percent) recorded in April, this year.
Of the total public debt, domestic debt of GH¢ 94.6 billion constituted 27.5 percent of GDP, while external debt of GH¢ 105.4 billion constituted 30.6 percent of GDP.
The figures were contained in the Bank of Ghana’s economic and financial report for the first five months of 2019.
With the current total public debt stock, it implies that Ghana loses 58.1 percent of its GDP to the ever-growing public debt. GDP is defined as the total market value of all final goods and services produced in a country in a given period, usually a year or quarterly.
Growing energy sector debt
Ghana’s energy sector is being choked on financial challenges which are likely to thwart the socio-economic development of the West African country.
This would have dire consequences on the general economy, senior World Bank officials warned at the opening of fifth Mini Grids Action Learning and Summit held in Accra, recently.
After three years of prolong power crisis (2014-2016), financial challenges in the country’s energy sector still remain, they observed.
The growing energy sector debt, obsolete machines, nonpayment of bank loans, among others is also some of the challenges the country is grappling with.
By Masahudu Ankiilu Kunateh, African Eye Report
Email: mk68008@gmail.com
