By Afia Nyarko Asare
New figures from the Finance Ministry projects that the current financial sector reforms being carried out in Ghana by the Central Bank is likely to cost the government about $billion which is equivalent to GH¢21 billion by the end of this year.
Divergent opinions have been raised about the general approach of this financial sector clean up and the colossal amount involve in executing it. Fears are also entertained about the uncertainty of appointed Receivers being able to recover the costs from owners and directors of the liquidated financial institutions.The Finance Minister, Ken Ofori-Atta made this leak in Parliament during the 2019 Mid-year Budget Review presentation with the explanation that, macroeconomic stability and growth is dependent on sound financial systems. Therefore, the operations of Banking institutions, specialized deposit-taking institutions (SDIs) and fund management companies providers of credit, liquidity and investment are critical to efficiency in any economy.
Mr. Ofori-Atta contended that the Bank of Ghana’s bold measures over the last two years to clean up the banking and SDI sectors, involved the revocation of licenses of nine universal banks, 347 microfinance companies (of which 155 had already ceased operations) and 39 microcredit companies/money lenders (10 of which 29 had already ceased operations). These massive failures were brought about by several years of an unsustainable licensing regime which lowered standards for entry into the banking and SDI sectors, as well as poor supervision and enforcement from the Central Bank. This was compounded by poor corporate governance and risk management practices, family and friends managing and influencing banks, abuse of related party relationships and unsustainable business models.
“Unfortunately, most of these institutions have denied depositors access to their deposits for a long period of time, creating liquidity challenges in the financial system, resulting in a high incidence of credit defaults in the system. The threats posed to the stability of the financial system and the economy at large were enormous, justifying the bold actions taken by the Bank of Ghana” he emphasized.
The Minister argued that, government is demonstrating its commitment to providing timely relief to depositors whose funds were at risk as a result of the collapse of the defunct banks and SDIs. This is being executed through the Purchase and Assumption programme which facilitated GCB’s consolidation of two banks. The Government then set up the Consolidated Bank Ghana Limited and capitalized it with GH¢450 million to ensure that no depositor lost their deposits.
Also,the Government of Ghana has issued various bonds to the tune of GH¢11.2 billion to cover the cost of the financial sector resolution and protect depositors.
In addition, GoG had provided an amount of GH¢925 million in cash to cover the small depositors of the 386 microfinance institutions, bringing the total cost to GH¢12.125 billion.
“These Government’s actions have restored confidence in the banking system. Through the Government’s interventions, significant deposits held by some 2,655,100 depositors (1,525, 550 bank depositors and 1,129,820 MFI depositors) have been saved. Over 3,000 jobs have also been saved.
The Bank of Ghana’s directive to banks to increase their minimum paid-up capital to GH¢400 million by 31st December 2018 has been successful. This injected fresh capital of GH¢4.2 billion into the banks. The Ghana Amalgamated Trust intervention is expected to lead to a strong indigenous Ghanaian presence in the banking sector. Mr. Speaker, it is gratifying to note that these regulatory and policy measures undertaken to clean up the financial sector, have already began to bear fruit”.
The Minister has also confirmed speculations that Bank of Ghana (BoG) will again publish the names of some insolvent microfinance and microcredit institutions and have their licenses revoked by September 2019.