A Ghanaian-France based Financial Analyst and Researcher Mr. Evans Darko has questioned the sustainability of Ghanaian banks especially Commercial banks in the event of total crash of the global banking and financial systems. His assertion and analysis stems from the recent failure of renowned banks in the USA and Switzerland, and in comparison, to the situation that led to 2017 banking crisis in Ghana.
The global banking system has hit a snag following the failure of the second biggest USA bank Silicon Valley Bank (SVB) and Signature bank (SB) and other banks in line of distress. This unfortunate news sent shock waves to the global stock market and banking systems, as the banking systems are interconnected, the SVB & SB news also revealed similar situation in Europe, thus Switzerland second biggest bank, Credit Suisse also reported operational failure with imminent collapse, in a rush to save the crisis to prevent quick spread to other continents
, and to avoid the similar case of 2008 Global financial Crisis which of course originated from the same USA through subprime mortgages crisis.
The Swiss regulator, Swiss National Bank gave out a loan of $54 billion to Credit Suisse to save the bank from Collapsing. However, the situation had already signalled panic withdrawal from both Shareholders and depositors, within a week shareholders had cash out of
$450million and over $17billion classified as risky investment (to write to zero). Credit Suisse management had confirmed of unable to adequately identify potential operational risk on their financial statement and Silicon Valley also confirmed failure to manager interest rate risk.
In attempt to get the largest shareholders of Credit Suisse to cough in more capital to address the crisis, its biggest stake holder, Saudi National Bank had declined such proposal on the basis that, as of last year it added up $1.5 billion amounting to 10% stakes, and as a result Credit Suisse had lost 75% of its value on the stock market. The banking regulators in both USA and Swiss are trying to find swift solution to prevent another Global financial Crisis. In the case of Credit Suisse, the Swiss regulators are considering a takeover by UBS which could be good news for the situation, and this could be a form of merged market share of around 35% to boost investors’ confidence. Although, UBS takeover negotiation is ongoing, but the fact is that liquidity levels of these banks would keep declining.
Nonetheless, if the situation triggers a crash of the global banking system can Ghana banks survive?, because the global banking system was resilient yet Ghana experienced banking crisis with the problem of liquidity, capital ratios, bad loans etc which resulted in collapsed of 420 banking and banking, non-financial and financial institutions. My worry for Ghana is that, in a more stable global banking and financial system we had a banking crisis, inadequate monitoring, evaluation and supervision by BoG is still a problem, Ghana do not have explicit deposit insurance to cover depositors and investors. During the 2017 banking crisis, the regulator (BOG) responded by upward adjustment of the minimum capital requirement to GHS 400 million thus over 300%, and over 3 years a lot of the banks perceived to be solvent could not meet this requirement. Also, BoG should not forget that, forcing banks to cover up more capital alone rises risk-taking level of banks which is based on empirical evidence and research
. The current banks failure in the USA and Swiss has resurrected the debate of lifting deposit insurance (FDIC) statutory limit cap so that depositors and investors of all sizes can get insurance cover, and it is important Ghana can follow suit on deposit insurance.
Moreover, there is inverse relation between interest rates and bond prices so of course if the bank does not have risk experts to measure non-anticipating risk from the market (e.g. interest rate risk) problems arises where the bank value in terms of portfolio-holdings could be wiped- out within days. In the case of Silicon Valley Bank, they bought huge bonds with US Treasury when prices was lower, the bank expected to sell it higher , and then rising inflation set in, however, in controlling inflation for the larger benefit of the economy ,then the monetary policy measures also comes-in, the US Fed hikes interest rate in quarter percentage basis points then value of these banks portfolio declined drastically not forgetting there is constant and increasing huge depositors withdrawal request that the banks are mandated to service. The speculation of bank failure would always attract huge panic withdrawal request by depositors and shareholders which cannot be stopped.
I am of the view that, it is time for Ghana and countries in Africa get explicit insurance with a good statutory limit to cover depositors in the case of bank failure so that the few left banks can minimize any unexpected external shocks, and depositors and investors can sleep well. MERCI BEAUCOUP
Keys: Silicon Valley Bank (SVB), Signature Bank (SB), Bank of Ghana (BoG)
By Mr. Evans DARKO
RESEARCHER, CREM RESEARCH LAB, FRANCE.