Evans Darko’s Letter To The Governor Of Bank Of Ghana

Dear Mr. Governor,

Thanks for cleaning up the banking sector due to the ongoing banking crisis. I was privileged to grab a copy of the report and per your report, you had successfully revoke licenses over 420 banking, on-banking, non-financial and financial intuitions comprising of 9 universal banks,347 microfinance, 39 microcredits, 15 savings and loans, 8 finance house and 2 non-banking.

Sir, going through your report, I spotted two key problem points out of the lot you based on to revoked their license(s) and these (2 keys) is in almost all the affected banks/institutions and this got my attention, (1) Extreme Negative Capital Adequacy Ratio/Liquidity and (2) Weak Corporate Governance. This clearly signals that; our problem is not only with the banking/financial institutions or affected institutions BUT the financial regulator(BOG) as well. So check yourself! (it’s more/less like who watches the WATCHMAN)!

However, I have been wondering why most of the African countries (Ghana) always wait until situation get to the emergency level before we begin to take action but the sad news is that, we do not at all times have the necessary available resources and the know-how to handle those emergencies. I understand there is no silver-bullet resistance to banking & financial crisis but other countries with strict ESME has been able to avert such crisis after Global financial crisis 2007-2008 & 2009-2010 Europe debt crisis.

In our banking crisis issue, why do we have to wait until these banks, microfinance, micro credit, savings & loans etc. to reach their extreme insolvency and under-capitalization level? Citing only 2 out of your numerous reasons to revoke license(s); (i) capital adequacy ratio(negative) and (2) weak governance and management. My question is, has the BOG been effective (monitor, evaluation & supervise) in discharging it responsibilities? I am asking because over 2 years ago official statement from BOG made it clear they don’t even have monitoring and evaluation offices and probably officers in all the 10-regions.

If indeed, the BoG has been effective, were these affected institutions back-tested (volatility & Distance to default) periodically? I think this day-in & day-out defaulting is not helping the economy and the ordinary Ghanaian at all because our financial sector adds over 50%(2015/2016 data) to the GDP annually. If regulatory authorities are more interested in license revocation instead of ensuring that the said institutions do not even get closer to their danger-zone by putting in place strict effective supervision, monitoring & evaluation tools, then we would be spending $billions of dollars "for this same clean-up every 5-10 years.

I learned the minimum capital requirement has been revised but Sir, I do not think this would do a miracle in our banking system. Don’t forget banking theory suggests that, a regulation that force shareholders to commit more resources is link to risk-taking. Moreover, we should not also forget that normally 90% of the bank management are non-shareholders and that they are being pushed by shareholders who are mostly well-diversified owners to taking high-risk. The adverse effect of these high risk-taking (Non-performing Loans & risky off-balance activities) does not hard-hit the shareholders but the ordinary worker (Ghanaian/African) struggling to make ends-meat and the economy.

In short, Mr, Governor, if BOG has been effective in (ESME), regular back-testing & all control mechanisms properly put in place and enforced, and yet still, these institutions are struggling with extreme insolvency, liquidity and under-capitalization issues, then I think, this is the time to roll-in the EXPLICIT DEPOSIT INSURANCE SCHEMES. We should not just fast-track the legislation aspect of it but the needed funds MUST be in place to enforce it.

Comparatively, it would be BEST cheaper if BOG & financial agencies functions effectively, being well-funded & enforce explicit deposit insurance schemes than the $millions of dollars you have just spent & spending on the clean-up and rescuing these institutions. Else it would be very unprofessional to solely blame these institutions for failure and the very best BOG could offer is to embark on license revocation spree. No we MUST help them to succeed by tackling the root-source(s) of the problem of which the financial regulatory (BOG) itself is an accomplice in this BIG failure.

If the BOG and the other financial agencies do not check the effectiveness of their duties before checking the banks/microfinance, microcredit, S&L etc. then we would always fall back to the same bracket of banking crisis (licenses revocation) irrespective of how much we raised minimum capital requirement (even to $500 billion/bank) and new directives we would always bring us back to the same story. For how long can we be spending $millions of dollars for this same problem? I was a little boy when I heard about this problem and over 30 years on we still talking about the same, where are we going as a nation? Back in 1982-89 similar crisis cost government over 6% of our GDP, so what is the cost to GDP for this clean-up?

Sir, it’s exactly 400 years ago when our ancestors the first black’s slaves arrived in Jamestown, Virginia, USA (very sad & mockery history). Do we expect second slavery? if No, then let’s check ourselves by doing right in the interest of Africa(Ghana) and our people.

Thank you Sir & I hope this piece would found space in your files.

! God bless Ghana God bless Africa!

Evans DARKO, MSc. Finance, IGR-IAE, University of Rennes1, France,

(The writer is Researcher specializing in banks profitability, risk-taking and national regulation)

Key words: Bank of Ghana(BOG), Savings &Loan(S&L), Effective Supervision, Monitoring &Evaluation(ESME)

Ref:IMFworkingpapers(bankingcrisis),Hon.KennedyAgyapongstatement(whowatchesthewatchman)