Updates of the Joy Business 3rd Financial Services Sector Forum on the topic: ‘The Financial Services Sector Clean-up; Now What?'
The 14th of August 2017 set off a chain of events to the chagrin of many in the Ghanaian economy. Two behemoth financial institutions that were synonymous with the Ghanaian dream of growing a company from nothing to something came crashing leaving a trail of job losses, panic and high level of despondency. UT Bank Ltd and Capital Bank Ltd had their licenses revoked by the Regulator, the Bank of Ghana and some assets and liabilities absorbed by Ghana's oldest local bank, GCB Bank. This purchase and absorption arrangement mitigated the potential negative spillovers the complete winding down of these banks would have brought.
GCB Bank became the new home for the customers of UT and Capital Bank at a cost of GHC 2.2 billion and calm was partially restored but many kept an eye out. 352 days down the line another hammer was dropped on the banking sector. 5 banks that had names resonating in every corner of the country ceased to exist and a new bank was formed to take again some assets and liabilities just as we witnessed with UT & Capital Bank. The banking sector was under the microscope again. This time, the level of interconnectedness of these banks to other parts of the financial sector began to rear its head and yes it wasn't pretty. The effects of this action reverberated across the length and breadth of the business world and even the national treasury, costing the taxpayer an initial GHC 5.7 billion.
Total cost shifts up as some banks could not meet a deadline for an increase in their minimum capital requirement from GHC 120 to 400 million. The national kitty is down an estimated GHC 11 BILLION on the banking sector alone. On the other end of the financial system, the securities industry was reeling from a problem that could cripple the business of investments.
The industry had its fair share of problems but had also been exposed to the problems of the banking, as banks are storehouses of funds for these institutions and in themselves an investment option by the fund managers. The interrelation of these institutions can spell doom and gloom if it runs askew. The regulator of the market also took some steps to deal with the weeds in the grass by closing down some institutions and instituting some reforms. In recent times the insurance industry has also had to deal with some bad nuts and ensure reforms are shaped to address dynamism in the market.
In recent days, the Specialized Deposit-taking institutions comprising savings and loans companies and finance houses have been placed on the chopping board. A number of institutions had their licenses revoked and placed under receivership through which customers will be made whole. The regulator cites a plethora of reasons, but at the core of this is regulatory forbearance and weak corporate governance with its concomitant effects.
Majority of the regulators have told us at one point or the other that yes indeed we have gone through a rough patch but the waters are calm. The four regulators of the financial system, the Bank of Ghana, Securities and Exchange Commission, National Insurance Commission and the National Pensions Regulatory Authority have an arduous task of preserving the peace that some have touted has been accomplished in the form of a clean-up. But is it really all done?