The Minister of Finance, Mr Ken Ofori-Atta, has explained that the decision to revoke the licences of seven banks was taken to save about 50,000 white-collar jobs in the overall financial sector, describing the decision as one of the most reflective periods in the history of the financial industry.
Defending the action of the Bank of Ghana (BoG), the minister said: “The leadership of the BoG has risen to the challenge. It’s a call to duty as we try to understand that these are difficult moments for all of us and that it requires some courage to take some bold decisions.”
Mr Ofori-Atta gave the explanation at a forum organised in Accra by the Danquah Institute, a think tank, on the theme: “The banking sector clean up — Are depositors safe?”
He said so far GH¢8 billion of taxpayers’ funds had been used to protect depositors and jobs.
The total value of the country’s financial sector, as of the end of 2017, was GH¢162 billion, of which the banks and other deposit-taking institutions contributed about GH¢110 billion, representing 53.4 per cent of gross domestic product (GDP).
Regarding the collapsed banks, the minister did not mince words when he described the situation as “plain thievery on the citizens by some shareholders and directors of these banks and a clear compromise by some officials of the central bank”.
He explained that there had been no adherence to proper corporate governance and no checks and balances, as some of the shareholders and the directors lent depositors’ funds to themselves, while some of the banks which were on emergency liquidity support engaged in inter-related lending, among others.
“We will make sure that these acts will not go unpunished and there will be prosecution for all those found liable,” he said.
Other speakers at the forum were the Chief Executive Officer (CEO) of Eben Consulting, Dr Ebenezer Ashley, and an economist at the Institute of Economic Affairs (IEA), Dr Eric Osei-Assibey.
Tracing the origins of the challenges in the financial sector, Dr Osei-Assibey said some of the banks found themselves in the mess when lending rates were very high, especially in 2014 when it was 35 per cent.
“From 2012, the signs were there because while the economy slowed down, interest rates began to rise to even about 35 per cent. Banks typically develop a high appetite for lending when interests rates are very high and they make a lot of profit in the process.
“Between 2012 and 2014, for instance, the banks had developed so much appetite for lending that the average credit supply was 50 per cent within that period. This means that some of the banks were over-exposed and that led to their serious credit risks also rising.
“When you find yourself in such a situation, you must introduce risk mitigating mechanisms to remain solvent,” he said, adding that the banks failed to take some of the precautionary measures and that partly led to their collapse.
For his part, Dr Ashley said the problems with the collapsed banks began to show in 2012, adding that the action by the BoG to revoke their licences was long overdue.
“The financial sector is a very sensitive area because it is the fulcrum of every economy. And generally there have been challenges for some time now and they should have been addressed long ago,” he stressed.
The liquidity and solvency challenges in the banking sector have persisted for a while, contributing to dwindling public confidence in its operations.
The BoG, on August 14, 2017, revoked the licences of the Capital and the UT banks, in line with Section 123 of the Banks and Specialised Deposit-taking Institutions Act, 2016 (Act 930), due to severe impairment of capital.
It appointed Messrs Vish Ashiagbor and Eric Nana Nipah, both directors of PricewaterhouseCoopers (Ghana) Limited, as joint receivers to wind down the affairs of the two banks, while GCB Bank was authorised by the BoG to take over the management of the defunct banks under a purchase and assumption agreement.
Earlier in March this year, the BoG announced that uniBank Ghana Limited, which had been facing insolvency and liquidity challenges over the past two years, had been placed under the management of the auditing and accounting firm, KPMG, as the official administrator.
The banking sector continued to face liquidity challenges, culminating in the consolidation of five different banks, including uniBank.
The BoG, on August 1, 2018, revoked the licences of five indigenous banks — The Royal Bank, the Beige Bank, the Sovereign Bank, the Construction Bank and uniBank — and appointed Mr Nii Amanor Dodoo of KPMG as the receiver for the five banks.