A Banking Consultant, Dr. Kojo Aboagye Debrah, has said that it would have been better if the Bank of Ghana allows troubled banks to establish a separate entity for their "bad assets” with the goal of cleaning up the banks’ balance sheets rather than collapsing them.

The Central Bank in a bid to restore confidence in the banking and specialised deposit-taking sector, embarked on a clean-up exercise in August 2017. This saw a reduction in the number of banks from 34 to 23, whilst 347 microfinance institutions, 15 savings and loans and eight finance houses had their licences revoked.

But referring to the alternative approach as “Good Bank-Bad Bank model”, Dr. Kojo Aboagye Debrah in an interview on an Accra-based TV station, indicated that this would have averted the trickle-down effect of job losses and low confidence in the sector, resulting from the Bank of Ghana’s distress action.

“What they could have done was ring-fence the losses or the situation with the 25 billion so that those nine institutions that were collapsed you could have given them a 10-year period; and say give these new balance sheets or new financial positions where they will make profits, so you have a clean book”, he said.

Dr. Aboagye Debrah’s comments are coming on the back of recent comments by former President, John Dramani Mahama that he will restore the licenses of banks ‘unjustly’ collapsed by President Akufo-Addo’s government if he is voted back into office as President.

Dr. Aboagye Debrah added they make profit, you create an escrow account and then on an annual basis they will repay and reduce the ‘bad’ bank. So that within the 10 years, they should’ve been able to clean the bad bank.”

The Banking Consultant said the expectation with this model is that the resulting "good bank” will have restored investor and market confidence, allowing it to raise capital more easily and at more affordable rates, and resume normalised lending.

He said this strategy was adopted by the US during its financial crisis in 2008.