As I spent time thinking through the banking sector clean-up by the regulator, Bank of Ghana, many things came to me but one question that kept me thinking is whether the current approach of revoking licenses and appointing a receiver to help wind down the business of these companies is the best the central bank could have adopted.
Though I have been in the business of reporting as a journalist for over 10 years, I began Business journalism or reporting within the financial space actively in 2012 which is almost seven years ago.
I admit it’s not enough time but it is still enough to have seen how managers of the banking or financial sector have gone about their work and tried to expand their business without the right strategic plan which will allow these businesses grow organically.
While asking myself the question of was or is the central bank’s approach to cleaning the sector they regulate the best and should only directors of these institutions be made to suffer the penalty while the very people who had the responsibility to have supervised them walk around boldly and enjoy their retirement with others only transferred from their current department to new ones, I came across a piece on a WhatsApp platform I’m on and it was posted by an editor of a paper;
“IF IT WAS YOU.
For over one year now, depositors could not get their money.
Many of these customers have suffered serious hardships, trauma etc.
Some died because they could not get their monies to resolve crises especially healthcare.
Some lost their children, wives, husbands, PARENTS, Siblings etc because they could get their monies to provide health care for them.
The children of some of these people have been sacked from school because their parents cannot GET their monies to pay their fees.
Many missed life-changing opportunities because they could not get their monies to undertake certain processes.
The list is endless.
Their monies ooooo.
I sympathise with the workers who lost their jobs some of which have not been paid salaries for about a year now but kept going to work hoping for something positive.
However, it is important to note that the workers and the managers were in employment because of the money people deposited with them.
Therefore, if they failed to effectively and efficiently manage the deposits, the collapse was inevitable.”
I must say I was touched by this as well and I recounted the many stories I had to edit and put on radio of marriages that had broken down and children that cannot go to school again, SME businesses that have collapsed all because of these depositors’ inability to access their funds they placed with these institutions.
But I asked myself, the approach of revoking licenses and appointing the receiver to take over the assets and liabilities and ensure the assets are sold to defray these liabilities by paying depositors, was that the best approach?
But before we go into the various approaches which all was going to cost the taxpayer some nail and a tooth, lets first look at how much was allocated or has been spent on this exercise to this point.
After government spent some GH¢12billion in cleaning up the banking sector, it estimated a third of that amount was needed to secure depositors’ funds lodged with various Micro-Finance Institutions (MFIs) and Saving and Loans (S&L) companies.
The Bank of Ghana (BoG) governor in one of his engagements with the media said the preliminary estimates showed that it would cost around GH¢700 million to clean up the MFIs. It is expected that BoG will use the GH¢700 million to protect customer deposits in the event the collapse of an institution similar to what happened under the banking sector clean-up exercise.
But at this point I ask that even before the central bank decided to move to the Savings and Loans sector, can we say depositors for the Banks and the MFI’s who had their funds locked-up, have received their monies, especially those with the banks which were consolidated?
And again Institutions like MFI’s who had their monies locked with these 9 banks, have they been paid, not forgetting that some of these have already been closed down because the investments were or have been locked with the consolidated bank which is said to be struggling. (One can point to their half-year financials)
Is it that the Central Bank was only interested in closing down these institutions but not concerned to follow through with the receiver to ensure that the very people they seek to protect have received their funds and were fine before moving to the next sub-sector?
But by the way, the same central bank by way of information tells us that they will be committing some GH¢1 billion to clean the Savings and Loans sector.
Figures from the Bank of Ghana show that as of Friday, August 16, 2019, it had revoked the licenses of 9 Universal Banks, 347 Microfinance Companies, 39 Microcredit Companies, 16 Savings and Loans Companies, 7 finance house companies, and two non-bank institutions.
APPROACH TO CLEAN-UP
There has been a lot of debate over the current approach being used by the central bank in its clean–up exercise. Some believe that BOG is being inhumane by not applying the human face to the exercise while some school of thought say what is being done is long overdue and was a necessary evil.
But in all these, the government which has given its full support makes us understand that, giving the risks that the collapsed institutions pose to the entire financial system, there was the need to protect the interest of depositors, and so the Bank of Ghana had to sanitize the banking and non-banking sectors since they were all deposit-taking institutions through the orderly resolution of the failed institutions in accordance with Sections 123 to 137 of Act 930.
In fact the World Bank and the International Monetary Fund, our development partners who conducted stress test on the sector some years ago and called on the government at the time to undertake a clean-up as we were sitting on a time bomb, nearing collapse of the sector, I dare say never suggested or said this current approach should be used but will lay before the government all scenarios with possible impact both on the economy and employment.
Remember that yes we are just over 30 million people and having banks only that exceeded 30 was a problem but “Na who cause am”, obviously the central bank is to be blamed as they were just giving license to anyone that shows they had the money. But good regulators could have advised individuals to invest in other banks to allow them to become bigger ones, participating in huge transactions.
But everybody was interested in owning their banks, so they can call themselves directors and CEO’s, an attitude which must be checked.
“It is okay to own a piece of the company which will guarantee you a constant inflow of profits than have it all and have it taken from you due to non-performance or regulatory volition. This attitude of ‘me, myself and my family only’ as Ghanaians must stop”
But to go to the point I want to make, I thought of three of these scenarios which I call CONSOLIDATE, REVOKE OR BAILOUT. The central bank chooses the REVOKE. You may be asking what is this gentleman driving at?
My argument is simple, of what benefit was it to the state when the regulator with the support of the government decided to go on the REVOKING OF LICENCES SPREE and closing down these institutions completely and appointed receivers, all intending to make the banking sector robust and strong in terms of finances.
After what they did my tax and yours running into 14 billion or more are to be used to clean up the mess right. What are we left with, the money goes into a bottomless pit which cannot be recovered and unemployment goes high?
Let nobody be deceived with the rhetoric that, the receiver will retain some of the staff to help the process. I ask which process and for how long. This is because these guys are going to be given a contract to help execute the plan to wind-up these institutions.
As we speak today employees have not received their exit packages because the receiver may or is struggling to even takeover assets to sell and make money to pay some depositors and outstanding debts not to talk of these employees.
But what I want to point out here is while I sympathise with the depositors who are struggling to get their funds back let's add workers who lost their jobs some of which have not been paid salaries for about a year now but kept going to work hoping for something positive.
Granted we even say 5,000 (Just an assumption because is over and above this figure in the tens of thousands) people have lost their jobs and each person had 3 dependants being a wife and two kids or a mother and father with a brother to take care off. Let’s do the math, the three dependants’ gives us 15, 000 and we add that to the 5,000 and we have 20, 000 who have been hit and if you go to the north that will be about four constituencies which will be hit.
Was the Bank Bailout and Financial System an option?
I dare say this was a better option which the government and the Bank of Ghana should have considered in its quest to clean up the financial sector. I am sure you may be asking why?
To revoke licenses and spend the taxpayers' money and all of us still become losers because what has happened is the economy has become slow and it will take time for confidence to build up again, jobs have been lost and companies collapsed while those funds the taxpayer has put in is gone down the drain.
But if I can save the jobs and the companies but only lose the 14 billion cedis, for me is a better option. This is because we had to find the money anyway to undertake the clean-up exercise.
Let me take back and to a bigger economy when they once got to this point and how it was tackled. President Obama on the night of FEBRUARY 24, 2009, when he appeared before Congress devoted part of his speech on making his position known on the rollout of a financial bailout. According to CBS News reporter, He began by restating the justification for the plan itself, saying "there will be no real recovery unless we clean up the credit crisis that has severely weakened our financial system."
"I want to speak plainly and candidly about this issue tonight because every American should know that it directly affects you and your family's well-being," Mr Obama said. "You should also know that the money you've deposited in banks across the country is safe; your insurance is secure, and you can rely on the continued operation of our financial system. That is not the source of concern."
This is what I expected my government to have done but I also refer you to an interesting article by The Guardian (A better bailout was possible during the financial crisis) which gives you an approach Obama used and Gordon Brown administration also used in the UK. See link (https://www.theguardian.com/business/2018/sep/18/bailout-financial-crisis-donald-trump-barack-obama-george-soros)
The UK situation they first gave the institutions the right to try and raise fresh capital from the market and the approach was that if they failed then the Royal bank being our version of the Bank of Ghana was going to then inject funds into these financial institutions as a bailout.
We are told that government was the biggest culprit to some of the bank's problems UniBank and GN Bank say they undertook government projects some through providing funds to contractors and the energy sector where utility providers owned them.
Maybe that is the reason why the previous government led by John Mahama felt introducing the ESLA was one important move to deal with the problem rather than collapsing. My discussions with former Finance Minister Seth Terpker, he revealed that their government was interested in saving jobs and businesses, hence ESLA was one of the major tolls that were to be used to bail out the banks instead of closing them.
Or should they have consolidated?
Another approach which the Bank of Ghana could have considered is to consolidate. What does it mean?
The term consolidate comes from the Latin word consolidatus, which means "to combine into one body."
According to Investopedia, “To consolidate (consolidation) is to combine assets, liabilities, and other financial items of two or more entities into one. In the context of financial accounting, the term consolidates often refers to the consolidation of financial statements wherein all subsidiaries report under the umbrella of a parent company.
Consolidation also refers to the union of smaller companies into larger companies through mergers and acquisitions (M&A).”
So, in my opinion, the regulator just as it did for five of the collapsed banks and formed the Consolidated Bank, an argument which is in the Guardian article above could have compelled some of these institutions to come together and tightened it regulations instead of sitting there and waiting to see things get worse.
When did we know that we needed to provide fit for proper rules and corporate governance rules as well?
This is after we collapse the first two banks some two years ago UT and Capital Banks and a year after we dealt with the others but it is important to place on record that Construction bank decided to return its license and closed h itself. That some say is when they saw the hammer the central bank was coming with.
I am of the opinion that the regulator BOG, could have forced the banks or MFI’s to consolidate, like in the Nigeria situation where when the minimum capital was raised from 1 billion Naira to 25 billion Naira the banks were asked to consolidate.
We all know that the BOG has reiterated the reasons why banks to consolidate their capital base. This was informed by the weak quality of assets, weak management, poor corporate governance, insider related abuses, weak capital base, and emergent systemic insolvency problems. This was when Dr Ernest Addison took over and raised the capital to 400 million cedis from the then 120 million cedis.
In my opinion, like we say when an account is audited by chartered accountants, “I think the central bank had it within their power to have forced banks to merge by way of consolidating them.”
Even though the Bank of Ghana is a regulator that is doing its rightful job which is within its mandate, the government must know they will bear the consequence of these actions when they go to the polls.
As I said the move of just revoking licenses will at all times slow the economy, heighten tensions, reduce confidence in the beginning in the financial sector because it like a wheel you halt and it takes a lot of energy to move it to go fast which takes time and affect the political fortunes of the ruling government.
Why so, because if 5,000 have lost their jobs and they have 3 dependants as I indicated earlier, that is 20, 000 people robbed of their daily bread.
Now when the banking sector clean-up came to Microfinance, Micro Credit and Savings & Loans owners cashed in and said they were reliable and strong and could be trusted and so people moved their funds there. This slowed commercial banking business and forced many of the banks to start with introducing promotions to mobilise deposits and some of these are still running though.
Then the MFI’s where hit with the latest within that subsector being the Savings & Loans, we are back to square one. When you talk to businesses they tell you the system is slow and others say there is no money. This has affected publicity or advertising budgets and salaries have not been increased in some of these institutions overtime the solvent ones I mean.
Now many are confused as to where to put their funds even though the exercise has left stronger banks and a highly regulated environment which I am happy with.
We are just a few months to elections and even how the exercise was done, political meanings are strongly being read into it and that is why the Obama Administration decided to bail out then collapsing institutions but still went ahead to tightened regulation in the sector.
I can bet my last coin on the fact that the 2020 elections will be about unemployment, collapsed banks and MFI’s pointing it to who are the owners and what their political affiliation is and the fact that depositors cannot retrieve their funds. But this could have been avoided totally if we went the bailout way or reduce the impact if we consolidated.
The views expressed in this article are the sole views of Norvan Acquah – Hayford and not in any way that of this platform. To reach me to also expressed your views, which might be different from what I have espoused here contact me via firstname.lastname@example.org