Accra, Aug. 9, GNA - The Bank of Ghana (BoG) on Monday confirmed that CDH Discount Company Limited and all its affiliates were in critical financial state, but stopped short of saying they had gone bankrupt.
The Central Bank noted that the financial house required supervisory intervention, but the Management and Board of Directors of the Company have not been able to implement any credible remedial measures to address the situation.
At an emergency media briefing in Accra attended by the Securities Exchange Commission (SEC) and the National Insurance Commission (NIC), Mr Emmanuel Asiedu-Mante, First Deputy Governor of the BoG said, "various on-site- examination reports on the company revealed serious weaknesses, instances of mismanagement, misapplication of clients' funds and non-compliance with basic legal and regulatory requirements."
Consequently the BoG has commissioned PricewaterhouseCoopers to conduct a comprehensive audit into the entire operations of the CDH Discount House Limited and the CDH Financial Holdings and all its subsidiaries.
Mr Asiedu-Mante said the exercise is to assist the Company to update the records and produce credible accounts.
He said following the current state of the Company it had been placed under strict surveillance and monitoring while the Management of the BoG held meetings with the Management of the Company.
Directives were issued for the adoption of remedial measures to arrest the deterioration in the performance of the Company, "however ... the Company have not been able to implement any credible remedial measures to address the situation," he said
Mr Asiedu-Mante said major violations and weaknesses in the Company's operations included maintaining a negative net worth in breach of the legal and regulatory requirements and are in a state where it had insufficient assets to cover its liabilities.
It has also been unable to keep proper and adequate records, which has made it virtually impossible to evaluate and assess its true financial state of affairs; as well as defaulting in complying with the minimum short-term assets ratio of 70 per cent as prescribed in the guidelines on the operations of Discount Houses.
Mr Asiedu-Mante noted that CDH Discount Limited "is not an authorized foreign currency dealer but accepted deposits in foreign currencies contrary to the Exchange Control Act 1961 (Act 71). "CDH Discount House was also found to have conducted inappropriate and undesirable business activities including using placements for unauthorized purposes," he stressed.
The BoG said licensed institutions were expected to institute remedial measures to address lapses and supervisory concerns identified during examinations and were given time to do so.
It said CDH Discount House Limited was given the opportunity to put its house in order but had failed to institute credible and effective measures.
On the implications for the country's financial system, BoG said the exercise was specific to CDH Discount House and its affiliates and did not involve other discount houses, adding that it could say nothing about investors and depositors unless it completed its findings.
"Debtors to whom the news came as a shock," the Bank noted, "will be required to honour all obligations under the relevant contracts with the Company."
Mr Asiedu-Mante indicated that the survival of the Company would depend on the findings of BoG and how the shareholders managed the situation as well as the extent to which the financial crisis had affected the Company.
"In the absence of any credible rescue packages, the option of liquidation cannot be ruled out," Mr Asiedu-Mante said.
The SEC said in furtherance to legal and pursuant to the SEC Regulations Legislative Instrument 1728, Regulation 33, the two Companies were to submit periodic reports and returns to the Commission, but, "over the last few months CDH Asset Management had been found to be non-compliant ... thus making it difficult for a true and proper assessment of their operations to be undertaken by the regulator," a statement from SEC said.
The SEC has thus suspended the licences of CDH Securities and CDH Asset Management while it reviewed the Companies' past operations over the next two weeks.