The cost of the ongoing financial sector clean up is likely to reach GH¢21 billion by close of this year, according to new figures by Finance Minister, Ken Ofori-Atta.

The Finance Minister projected on Monday during the Mid-year Budget Review presentation that it is likely that the clean up could reach $3 to $4 billion dollars by end of this year.

This is equivalent to GH¢21 billion using the Bank of Ghana’s dollar transaction rate for commercial banks.

This new figure is about GH¢3 billion more than what Joy Business projected last month.

However, the projected figure may even be realised before the end of this year following revelations by the Finance Minister to Joy Business earlier that the last batch of reforms – which will target the loans sectors – will happen before the end of September 2019.

Joy Business is also learning that this may exclude the estimated cost of any clean up in the capital and investment space.

The huge cost of the financial sector clean up is raising concerns about whether the general approach to the financial sector clean up was sound.

It is also uncertain whether the appointed Receivers will be able to recover the costs from owners and directors of the liquidated financial institutions.

For instance, one of the Receivers intimated to Joy Business that it is a difficult task to identify assets owned by owners or directors of these defunct institutions.

Meanwhile, the projected GH¢21 billion is likely to increase further by the end of this year.

This is what the Finance Minister said in Parliament about the Financial Sector during the 2019 Mid-year Budget Review presentation:

FINANCIAL SECTOR

Mr. Speaker, the soundness of our financial system is essential for achieving macroeconomic stability and growth. In addition to providing substantial employment, banks, specialized deposit-taking institutions (SDIs) and fund management companies, as providers of credit, liquidity and investment, play a critical role in the effective functioning of our economy.

Mr. Speaker, the Bank of Ghana’s bold measures over the last two years to clean up the banking and SDI sectors, involved the revocation of licenses of nine universal banks, 347 microfinance companies (of which 155 had already ceased operations) and 39 microcredit companies/money lenders (10 of which 29 had already ceased operations). These massive failures were brought about by several years of an unsustainable licensing regime which lowered standards for entry into the banking and SDI sectors, as well as poor supervision and enforcement from the Central Bank. This was compounded by poor corporate governance and risk management practices, family and friends managing and influencing banks, abuse of related party relationships and unsustainable business models.

Many of these institutions had denied depositors access to their deposits for a long period of time, creating liquidity challenges in the financial system, resulting in a high incidence of credit defaults in the system. The threats posed to the stability of the financial system and the economy at large were enormous, justifying the bold actions taken by the Bank of Ghana.

The Government has demonstrated its commitment to providing timely relief to depositors whose funds were at risk as a result of the demise of the defunct banks and SDIs. The Government, through a Purchase and Assumption programme, facilitated GCB’s consolidation of two banks. The Government then set up the Consolidated Bank Ghana Limited and capitalized it with GH¢450 million to ensure that no depositor lost their deposits. The Government of Ghana has had to issue bonds to the tune of GH¢11.2 billion to cover the cost of the financial sector resolution and protect depositors. In addition, GoG had provided an amount of GH¢925 million in cash to cover the small depositors of the 386 microfinance institutions, bringing the total cost to GH¢12.125 billion.

Mr. Speaker, the Government’s actions have restored confidence in the banking system. Through the Government’s interventions, significant deposits held by some 2,655,100 depositors (1,525, 550 bank depositors and 1,129,820 MFI depositors) have been saved. Over 3,000 jobs have also been saved.

130. The Bank of Ghana’s directive to banks to increase their minimum paid-up

capital to GH¢400 million by 31st December 2018 has been successful. This

injected fresh capital of GH¢4.2 billion into the banks. The Ghana Amalgamated Trust intervention is expected to lead to a strong indigenous Ghanaian presence in the banking sector.

Mr. Speaker, it is gratifying to note that these regulatory and policy measures undertaken to clean up the financial sector, have already began to bear fruit.

132. Some have suggested that instead of revoking the licences of the now defunct institutions, the Bank of Ghana should have kept them going somehow. Some have even said that the previous regime was the “good doctor” that allowed these zombie institutions to continue albeit in their comatose state and would not do intensive and intrusive surgery, while the current administration is the “bad doctor” that came in to “kill or collapse” them.

However: First of all, at the stage at which the current administration found the banking and SDI sectors, it was too late to salvage the already comatose financial institutions, and intensive and intrusive surgery was required for the many walking dead.

Secondly, the failure of these institutions was caused primarily by poor governance and lax oversight by Boards of Directors and unlawful behavior of shareholders and related and connected parties who had plundered these banks’ deposits and resources.

Thirdly, continuing to support these failing institutions would have been creating moral hazard for bank shareholders, directors, and managers whose actions or inactions would have been rewarded by the tax payer.

By revoking the licenses of these insolvent institutions, the Bank of Ghana was acting according to its legal imperative, and did so in a manner that preserved depositors’ funds, saved a significant amount of jobs.

And, let me be very clear here, we were at the precipice of a major fiscal melt down and let no one indulge in self-serving oratory. The end cost,

Mr. Speaker, may be anywhere from USD 3 to 4 billion, a poison pill from the previous Government.

Mr. Speaker, the liquidation of the defunct institutions is progressing, albeit with impediments from persons whose unlawful actions were associated with the failure of these institutions having the audacity to seek legal cover. The Government’s financial interventions in the clean-up exercise were only a stop-gap measure necessary to help mitigate the socio-economic impacts of the failure of the relevant financial institutions. It is imperative that we all support the recovery of assets from persons who misappropriated or borrowed funds from these institutions and have failed or refused to pay back in order that liabilities left behind can be settled. To the extent of any recoveries made by the receivers/liquidators of these institutions, Government expects to recoup amounts it has spent so far to provide relief to depositors.

This will go a long way to enable Government finance other priorities for our socio-economic growth.

Mr. Speaker, government continues to support effective regulation of the financial sector. We are confident that the Financial Stability Council recently established and inaugurated by His Excellency the President will work assiduously to promote a resilient financial system that supports our economic growth agenda. We are also fully committed to supporting the operationalisation of the Ghana Deposit Protection Scheme in September 2019 to further protect the interests of depositors.