Financial Sector Clean-Up Was A Sham; Cruel Act Of Mercenary Targeted At Indigenous Banks - ASEPA
The Alliance for Social Equity and Public Accountability (ASEPA) has indicated that the financial sector clean-up exercise undertaken by the New Patriotic Party (NPP) government was a sham and a cruel act of mercenary targeted at collapsing indigenous banks in the country.
The ruling party in 2017 commenced what it called the financial sector clean-up clear leading to the collapse of some universal banks. This was followed by same on savings and loans, and other financial institutions leading to revocation of license by the Security and Exchange Commission (SEC).
At a press conference in Accra today, ASEPA has accused the government of the financial sector clean-up to deliberately collapsed targeted indigenous banks.
According to the anti-corruption group, some of the banks had challenges that needed to be resolved but believe if the Finance Ministry had paid the GHC5.7 billion the government was owing contractors who had borrowed from these banks in question, they would have been liquid enough to meet the minimum capital requirement.
“The Minister of Finance deliberately refused to pay GHC5.7 billion of monies owed to contractors who borrowed those monies largely from Ghanaian banks. The payment of these contractors alone would have contributed about GHC5.7 billion to the recapitalization of these local banks.
“Banks such as uniBank would have received GHC1 billion to survive whilst Royal Bank and GN Bank would have received in excess of GHC2.3 billion to meet the minimum capital requirements”, Executive Director of ASEPA, Mensah Thompson told Journalists at the news conference today.
According to ASEPA, it is worrying to know that for every single reason given for the collapse of the banks, there were more grievous of the same in relation to the banks that have been allowed to continue to operate.
Mensah Thompson further stressed that government lied when it said the financial sector clean-up exercise is to protect the customers of the collapsed banks and savings and loans.
He maintains that if indeed that was the case, customers of collapsed fund management companies will not still be picketing over unpaid monies and thousands of jobs would not have been lost in the process.
Below is the full speech read by Mensah Thompson at the press conference today:
ASSESSING THE SOCIO-ECONOMIC IMPACT OF THE BANKING SECTOR REFORMS ON THE ORDINARY GHANAIAN
A Presentation by:
(Executive DIRECTOR, ASEPA)
Ladies and gentlemen of the Media, I welome you to today’s Press Briefing and I take the opportunity to Thank you for honouring our invitation at such short notice.
You the media has been our strongest ally as CSOs in the dissemination of vital information to inform and educate the public, you continue to patner us every now and then in unlimited quest to deepen our democracy and to promote citien participation in Governance.
Today we have invited you for short exercise, TO ASSESS THE SOCIO ECONOMIC IMPACT OF THE SO CALLED BANKING SECTOR REFORMS heavily touted by Government.
Ladies and Gentlemen durin the 2020 budget reading in Parliament last year, Finance Minister said and I quote “The intervention of the government to save depositors and investors whose funds were locked up in failed financial institution has been very costly
“In 2017 and 2018 the government spent 11.7 billion to save depositors held by banks that were resolved by the Bank of Ghana and set up the Consolidated Bank Limited,”
In this report to Parliament, the finance Minister Ken Ofori Attah was saying the rationale behind the so called clean was to make sure depositors did not lose their hard earned investments.
Rationally if banks were distresses and the regulator says let me intervene to protect depositors’ cash that would have made sense irrespective of the approach.
We may have lost a few banks and a few jobs but depositors would have gotten their monies or investments, re invest in the few strong banks again, these banks would have gotten the capital to credit businesses, new jobs would have created to make up for the lost ones and the economy won’t hard hit.
Without rationalizing the cruel nature this clean up, the point we are making is that if the clean up was with the right intention of protecting depositors, the results would have very different.
In the same report to Parliament, the cost of the clean up was pegged at GHC64.7billion that is $11.6billion.
Find link below…https://www.modernghana.com/news/967413/2020-budget-ghc647bn-used-to-clean-up-banking.html
Before we even tell you how this clean-up has impacted on the socio economic lives of the Ghanaian, we want to demonstrate to you why we believe this whole so called cleanup was a sham and cruel act mercenary targeted it indigenous banks.
Without mincing words, we boldly contend that indeed there were systemic challenges in the sector that needed to be addressed.
Some of the banks had issues that needed to resolved, some of the banks exhibited fundamental weaknesses that needed to be strengthened of course with help of the regulator.
But it is also an indisputable fact that, some of the banks were not as weak as the Government made it look like, infact most of the weakneses which the BoG stood on to revoke their licenses were artificially created distress by the BoG.
A classic example is the cruel downgrading of Unibank’s portfolios three different times within a month just to bring it to a financial position where it would be convenient to collapse it and defend the action.
Folks I have here a letter Unibank wrote to the BoG complaining about how an annual scheduled audit of the BoG turned into a weekly routine audit by the different groups of auditors from the Banking supervision Department of the BoG, auditing the same books, the same loan portfolios and downgrading the same loan portfolios at each turn just to create artificial insolvency and then collapse it, How cruel can one be????
Again the The Minister of Finance deliberately refused to pay GHC5.7 billion of monies owed to contractors who borrowed those monies largely from Ghanaian banks. The payment of these contractors alone would have contributed about GHC5.7 billion to the recapitalisation of these local banks. Banks such as uniBank would have received GHC1 billion to survive whilst Royal Bank and GN Bank would have received in excess of GHC2.3 billion to meet the minimum capital requirements.
When the Finance Minister was refusing to pay these monies and the loans granted to these contractors by the banks which had become overdue, Dr Addison at the BOG was sending his team of auditors at the banking supervision department of the BoG to go and write those loans(govt debts) which further impaired or wiped off the tier-one capitals of the largely local banks.
So while uniBank was looking to raise GHC400m to meet the new minimum capital requirements, BOG had forced it to write-off overdue Government Debts to contractors and other Government obligations to the bank to the tune of GHC1 billion.
The strategy of impairing minimum capital of uniBank to declare it insolvent was also perfectly applied to the GN Bank and Royal Bank to a monstrous effect.
Before the reckless collapse of these financial institutions, the records shows that Databank and its affiliates had started redeeming their investments from Ghanaian banks, fund management companies.
They withdrew their monies from UT Bank, Beige Bank, Legacy Finance and many other banks and SEC-regulated Institutions.
In May 2018, after Databank and Enterprise Group had moved all their monies to ‘safety’, Rev Ogbamey Tetteh struck the securities industry with a killer directive. He asked all SEC regulated institutions to redeem all their investments within six months. This began a process of creating massive confidence crisis and liquidity crunch that later brought the industry to a standstill and an imminent collapse.
The Directive created a web of redemptions and counter redemptions on SEC regulated companies and led to panic withdrawals of SEC regulated companies to move their monies from largely Ghanaian-owned banks struggling to raise the new minimum capital;
Today, Ghana’s Securities Industry has totally collapsed and the SEC has become an Arbitration Centre instead of a regulatory point.
As SEC was collapsing and inciting panic withdrawals in the Securities industry and against local banks, Dr Addison and his team at BOG launched their first attack. They withdrew the licences of UT and Capital Banks and announced a purchase and assumption agreement for GCB to take over selected assets and liabilities of the two collapsed banks.
This set in motion a sustained panic withdrawal in the entire financial sector of banks that hit hard on Ghanaian Banks, Savings and loans companies, Finance Houses, Fund management companies, Rural and Community Banks, Credit Unions, Micro Finance Institutions and many others.
Knowing that Databank and Enterprise Group members had already withdrawn their monies from these collapsed banks, the second phase of the strategy was launched. Instead of paying the GHS2.2 billion in cash and cash equivalent or tradeable instruments so that depositors, including financial services companies such as savings and loans, fund management companies, finance houses, rural and community banks can withdraw their monies and meet customer demands to curtail panic withdrawals and instil confidence, Ken Ofori-Atta decided to issue a non-tradeable corporate paper bond to GCB Bank.’
GCB Bank, now with a piece of paper and not cash, was forced to dip in its little cash resources to pay individual depositors of these collapse banks amounting to about GHC1 billion. This compelled the above listed financial institutions to restructure their deposits and investments to tenure of three years and cut down their interest rates to 8.5%
The institutions except Databank were stuck and continued to struggle to find the money to pay their depositors,Now the BoG and the SEC had all the arsenals to go after them and to earmark them for collapse
As the fire of panic withdrawals, fears and collapse of confidence in the financial sector ensued, Dr Addison and the BOG consciously fuelled more panic withdrawals with threat of collapsing more savings and loans companies, MFIs and Finance Houses they were victims of his BOG and SEC inspired panic withdrawals and liquidity crisis.
The bank of Ghana frightened Ghanaians at each MPC Press briefing by preaching doom in respect of the local banks leading to more misery for the local banks.
In December 2018, the BOG completed its destruction mission with the collapse of 7 more banks, 23 savings and loans companies and 347 MFI.
All throughout the process of collapsing these banks, the bank of Ghana and the Ministry of Finance have hidden behind dubious narratives to justify its self-seeking collapse of our banks and financial institutions. Notable among them are;
b) Manipulation of initial capital
c) Related party transactions
d) Stealing and improper dealing of shareholders and directors
e) Over Exposure of shareholding to a single shareholder
While these may cost BOG regulated institutions some sanctions and penalties should they be in breach of the law or BOG directives, they don’t constitute grounds for revocation of licence but rather a program of corrections fairly and impartially implemented.
What is worrying is that for every single reason given for the collapse of the nine banks, there were more grievous of same in relation to the so-called special banks that are still alive.
POLITICAL TARGETS IN THE REFORMS
a) Unibank endured five AQRs in August 2017. These reviews ended with downgrades in the bank’s loan portfolio, ostensibly to run down the bank and ultimately lead to what happened on August 14, 2017 – a takeover alongside four other banks.
b) Unibank lost over Ghc2 billion in deposits within four months of being put under administration.
c) Unibank was owed over GHc1 billion through Government Contractors and Government itself that Ken Ofori Atta Refused to pay.
d) The aim of Administration as envisaged by the Banks and Special Deposit-Taking Institutions is to provide an opportunity for the administrator to conduct series of activities that will provide recommendations for a turnaround of a bank and not a premature collapse before all the steps are taken. These include the following;
i) An interim report providing update on the status of the bank. This is not an audit or forensic review report that can be relied upon to make major decisions in relation to a bank in administration. This was the report produced by KPMG popularly referred to as the KPMG Report. It is instructive to note why KPMG made very wide and sweeping disclaimers in its report. KPMG was seeking to indemnify itself in compliance with the requirement of the law that the interim report should not be used for any major decision and that the BOG is on its own if does rely on it. As a matter of fact, KPMG states categorically that they did not validate the numbers and did not seek explanations from the shareholders, directors and managers of Unibank
ii) Special Report together with inventory of assets that provide a plan of action to turnaround and restore the bank. Some of the recommendations envisaged by Act 930 are;
iia) Assessment and reconstruction of the financial situation of the bank based on its validated financial data and a forecast of its financial viability and capital requirements. This step required extensive revaluation of the assets and liabilities of the bank to establish the solvency, liquidity situation and funding gap of the bank.
The definition of solvency as provided for by Act 930 is a very technical position that does not envision mere reliance on the assets and liabilities values as reported on the face of the bank’s balance sheet but based on a standard of revaluation of assets and liabilities to reflect market related values.
iib) A program of proposed financial engineering and strategies for financing or otherwise include the following;
iic) Issuance of additional shares to existing shareholders to raise the capital required to return the bank to profitable and viable operations.
Iid) Issuance of new shares to new shareholders to raise the needed capital or a combination of both existing and new shareholders.
Iie) A program of restructuring, reorganisation and corporate Government changes as necessary
Iif) a program of mandatory restructuring of debts and liabilities on the books of the bank with the exception of secured liabilities.
The interment of Act 930 is to use administration as a major tool for analytical review, restructuring and re-organisation of a troubled bank to give it the best possible opportunity for survival and viability.
As a matter of fact, the tool of administration is a patient vehicle of rehabilitation. The proof of a bank beyond redemption as an issue of law and fact and not oratory gymnastic by a BOG Governor. That is why the BOG is given the power grant administration for up to one year by the law and constantly monitor and review progress of work by the administration who acts as a Doctor Physician appointed by the Government revive the sick bank. If the BOG is not satisfied with the treatment of the patient bank by the Physician Administrators, the law empowers him to sack him and appoint better administrator who will give the patient the best chance of survival.
That Dr Addison did not have the patience to allow the Administrator the time and space to give Unibank the best chance of survival is a criminal termination of live by one put in a fiduciary position to save the life of a bank.
This criminal termination of life is clearly manifest in the way Dr Addison side-stepped the rules of natural justice provided for in law to give opportunities to the parents of the child (Shareholders of Unibank) if you intend to disconnect the oxygen to the their child (revocation of licence) for them to prefer acceptable suggestions and remedies that may let their child live and not die.
This is clearly provided for by Section 14 (3) of Act 930 to give one month notice to the bank the intention of the BOG to revoke the licence (terminate its live and appoint an undertaker called a receiver) of the bank giving reasons to allow them respond to the letter within one month.
Dr Addison announced the death of the Unibank on national television and radio without granting the parents of Unibank (shareholders and directors) the one month notice required by law to enable them save their child.
After this lawless and gruesome murder of Unibank, Dr Addison, Ken Ofori Atta and Nana Addo who are the chief murderers go ahead to serialised a disclaimed KPMG report to intentional create a narrative of improper conduct of shareholders and directors who were denied their legally enshrined right to natural justice to save their child Unibank or at worse braze up for its possible demise in a month.
ii. Heritage Bank:
Among all the nine banks that have lost their licences under Dr Addison and Mr Ofori-Atta’s Draconian reforms, only Heritage Bank was a solvent bank. By solvent bank, it means that the bank was not a threat to third parties but the BOG Governor still came up with very strange reasons to take the Bank and consolidate it.
In December 2018, the BOG invited the majority shareholder of Heritage Bank to a meeting. At the meeting, the BOG proposed to Heritage Bank to merge with the Universal Merchant Bank (UMB), one of the banks still in operation now.
The Directors of Heritage Bank then appointed KPMG to conduct a preliminary due diligence on the said bank for the former to take an informed decision. The report of KPMG identified various significant impaired loans, including related party loans that would push UMB, which was Bank of Ghana’s chosen merger partner with bank Heritage Bank, into a negative net worth if those loans were written off in line with the stringent requirements of IFRS9 standards on financial instruments which was then enforceable in 2018.
As a result of this gloomy outcome from the due diligence by KPMG on UMB, the directors of Heritage Bank, led by Prof. Kwesi Botchwey declined to merge the good, solvent and highly liquid bank with a bank with significantly toxic assets.
A few days later, BOG, the very institution that was willing to supervise a merger of Heritage Bank with this UMB, revoked the licence of this solid Heritage Bank with very spurious reasons.
The question to ask is whether Heritage Bank would have been collapsed if it had agreed to merge with this very UMB that is now struggling to be recapitalised?
These are some of the weird reasons;
a. Fit and proper.
He claimed that because the majority shareholder is in court over dispute in relation to a business transaction, he’s not fit and proper. When it comes to the issue of who is fit and proper to operate in Ghana’s financial sector, the institution that fails that test is the Bank of Ghana and the Ministry of Finance and they are each headed by persons who pride in trampling upon rules. As you already know, some four private investors lost their stakes in ADB Bank under a share annulment exercise that reverted 51 percent of ADB Bank to the Financial Investment Trust (FIT), a subsidiary of the Bank of Ghana. As a result of that action, the Bank of Ghana now owns 60.5 percent ADB. Yet, this same bank operates with an illegal board. It is on record that the ADB Board, chaired by Mr Alex Benarsko, a former director of UT Bank, has not been approved by the Bank of Ghana. The board, however, was inaugurated on the authority of Ken Ofori-Atta, although the Bank of Ghana had not approved it. Now, tell me; is it Heritage Bank’s significant shareholder, Seidu Agongo or Bank of Ghana that is not fit and proper to operate a bank?
And why has BOG not approved the board of ADB? Why are people involved in the collapse of UT Bank and Capital Bank allowed to sit on the Board of ADB Bank contrary to the BSDI Act 2016 (Act930),
Also, Section 58 of Act 930) and Fit and Proper regulations of BOG states categorically that ‘A person shall not be appointed or elected or, accept an appointment or election , as a director or key management personnel of a bank, specialised deposit taking-institution or financial holding company if that person (d) has been a director, key management personnel or associated with the management of an institution which is being or has been wound up by a court of competent jurisdiction on account of bankruptcy or an offence committed under an enactment’.”
The resolution of UT Bank and Capital Banks were in response to reported breaches of an enactment, which enactment was referred to as Act 930 by BOG.,
The board chair, Mr Alex Benarsko, was a director of UT Bank prior to its collapse in 2017 while the current MD, Dr John Kofi Mensah was also a former MD of Capital Bank.
“In fact, Dr Mensah has been sued by the Receivers of Capital Bank to pay back GHS15.7 million that he is believed to have misappropriated to himself while serving as MD.
Also, a former Secretary to the board of UT Bank, Madam Mary Abla Kessie, is now a director of ADB Bank. In effect, three persons, who are not fit and proper, according to Bank of Ghana’s own rules, sit on the board of ADB Bank, a bank that is 60 percent owned by the Central Bank, Again, tell me, between Seidu Agongo and Bank of Ghana, who is fit and proper to operate in Ghana’s financial sector?
b. Over Exposure of Heritage Bank to Seidu Agongo
On the issue of the overexposure of Seidu Agongo to Heritage Bank, which also warranted the withdrawal of the Bank’s licence, it is instructive to note that the same Bank of Ghana had given Heritage Bank three years, beginning from 2016, to dilute the shareholding of Mr Seidu Agongo down from 70 percent. When it was being diluted in line with regulatory directives, the same Bank of Ghana ignored its own advice and took down the bank. This smacks of a regulator who does not respect its own directives. But what Ghanaians do not know is that two other banks are in situations that are worse that Heritage Bank’s yet the Bank of Ghana found it prudent to save them and bring them under the support the dubious and shady GAT programme.
i. The Universal Merchant Bank (UMB) is 96 per cent owned by one shareholder, Fortiz Private Equity Fund. Yet, Bank of Ghana did not see this as overexposure that should have cost the bank its licence. And it needed not, given that over concentration is dependent on the condition(s) in the licence granted the institution or the directive from the regulator subsequent to the issuance of the licence to commence business. That is why it is reckless, incompetent and unethical for a central bank that directed a bank to dilute its shareholding structure within three years will turn around to collapse the same bank in the second years, citing overexposure as one of the bases.
Fig 1 Weakening Banking Sector
A survey conducted by PWC vividly demonstrates the abysmal performance of the banking sector reforms. The following are excerpts of the report;
“The banking sector reforms injected only a paltry GHC1.5 billion. In search of this GHC1.5 billion, we have spent GHC13 billion of the taxpayers’ money.
Ladies and Gentlemen, at this that we have been lied to all this while that the so called Banking sector Reforms was to protect depositors.
If it was why would Government issue a 5year zero coupon bond to these same customers it claims it was protecting?
Why would Government ask them to go to CBG and discount their sweat and blood by 50% if they want their money now?
Why are the customers of collapsed Fund management companies still picketing everyday if the reform was to protect them?
Why are customers organising Press Conferences and threatening to Storm the Jubilee House if the Government does not pay their monies?
Why are these people dying?
Why are their children dropping out of school?
Why are their children loosing their jobs, livelihood and their families?