Bank Crisis: Are The gods To Blame?

Today, August 14, 2018 marks exactly one year since the Bank of Ghana made a historic announcement on the collapse of two local banks – Capital and UT banks —and their acquisition by the GCB bank.

The central bank at the time explained that it decided because the said banks were “deeply insolvent” and that both banks were unable to “develop an acceptable plan” to address their “significant shortfalls.”

A GHc2 billion bond was subsequently issued, at the expense of innocent taxpayers [through no fault of theirs], to clear the messes created by the two banks.

Five collapsed banks
Fast forward to 2018, five banks including uniBank, Sovereign Bank, Construction Bank, Royal Bank, and Beige Bank had their licenses revoked and merged into one called Consolidated Bank Limited .

Dr. Ernest Addison, Governor of BoG, explained that his outfit decided because the said banks had become insolvent adding that some obtained their licenses through questionable means.

He added that some of the banks also breached cash reserve requirement, while others had negative capital adequacy ratio, with their shareholders also engaging in supposed suspicious transactions.

Dr. Addision said a GHc5.76 billion bond has also been issued to cover the gap between the liability and assets assumed by the Consolidated Bank.

More troubles for UT, Capital bank
Discussions on the collapsed banks have dominated crucial conversations in the country within the last few days following a leaked report that showed that UT and Capital banks squandered a total of GHc1.4 billion the central bank gave them as liquidity support to enable them to bounce back.

UT bank is said to have received GHc860 million while Capital bank had GH610 million but instead of using the monies for the purposes to which they were given, the leadership of the two banks allegedly misused it.

The report outlined terrible governance practices, incompetence and mismanagement by top management and board members, high non-performing loans among others for the collapse of UT and Capital Banks.

Many Ghanaians have expressed worry over the developments in the banking sector.

Although some have called for punishment for those whose actions led to the collapsed banks others have also pointed accusing fingers at the central bank for reneging on its duties hence the troubles in the banking space.

I'm not writing this piece as an expert in banking but as an average Ghanaian who saves in a bank and is worried about the developments in the sector.

How do banks make money?
Banking is a serious business, so is banking supervision.

Banks make money mainly from interest on loans, commissions, charges on remittances, accounts and other charges.

Recent figures from the central bank showed that deposits accounted for 62.5 percent of the banking industry's assets.

There've been complaints on why Ghana, with a population of close to 30 million have over 30 banks while Nigeria with over 180 million people has only 28 banks.

Despite the vast number of banks in Ghana, the unbanked population remains high at about 70 percent.

This implies that many still prefer keeping their monies under pillows and other unsafe places.

How would the unbanked population reduce with recent troubles in the banking sector?

How would the banking sector be healthy if the central bank which has all the powers to regulate activities of financial institutions keeps giving them liquidity support instead of doing the needful?

From precedence, most of these institutions the central bank support misuse the money by channeling it into wasteful ventures.

In the case of Capital Bank, the leaked report noted that the GHc610 million liquidity support was allegedly diverted to other businesses as well as used for setting up another bank called Sovereign bank.

BoG after taking over uniBank some months banks [before it was merged] accused it of lending its liquidity support to another institution to buy shares in ADB bank.

Bank of Ghana accused Belstar and Starmount of acquiring ADB's shares in 2016 “with funds obtained from uniBank Ghana Limited using emergency liquidity support obtained by uniBank Ghana Limited from the Bank of Ghana in questionable circumstances.”

So why would BoG which has a banking supervision division and seems to know all the happenings in the financial and its implications on the economy delay in taking bold decisions until the situation gets out of hand?

The central bank has to sanitize the space to protect monies of depositors from some of these money sucking vampires who have taken over the banking space.

It has to beef up its supervision of the banks.
The GHc400 million recapitalization move is good but what if the banks meet the requirement and still go ahead and misbehave and misuse deposits?

The central bank must not fail Ghanaians; it must trigger the necessary laws to clean up the banking space.

A few strong local banks within the system is better than many weak ones.

Ghanaians passionately want Ghana to develop, but we can't continue raising bonds [to be paid by taxpayers] to clear messes of supposed rich but greedy people who channel our deposits into other wasteful ventures.

Some of this liquidity support and bonds could be used in other sectors of the economy.

Persons whose actions and inactions led to the collapse of the banks must not go unpunished. No one is above the law.

Implement Deposit Protection Bill now
BoG must also implement the Deposit Protection Bill passed by Parliament into law in July 2016 to protect depositors from unforeseen circumstances that may result in loss of funds.

Per the law, a Deposit Protection Fund is to be established to primarily serve as an insurance scheme where depositors may receive up to GHS6, 250 in compensation for deposits with banks and GHS1, 250 for depositors with other specialized deposit-taking institutions.

While calling for the amounts to be reviewed upwards, the central bank must take immediate steps to implement the law with urgency to safeguard monies of Ghanaians in possession of financial institutions.