We woke up today to something really courageous and needful, a list, “… over 4,200 companies, secondary schools, and individuals, pastors, and other professionals are indebted to Gold Coast Fund Management (GCFM) to the tune of over GH¢434 million.”
My first reaction was no way! I then spiraled into the legalities; were the appropriate notices given? Does the publication breach confidentiality and the requirements to act in trust and good faith? The biggest legal question was, does GCFM have the mandate to lend or more appropriately what is the nature of these transactions and the connections with GN Savings and Loans? Barring these nagging questions, I quickly moved past the legality, not discounting its merit, but noticing it is a quicksand that profits very little.
The heart of the issues as I went through the list was however clear, the questions on my mind merged quickly into one single most important view: was the managers who created these assets grossly incompetent or were they complicit?
Basics, if I come to you to ask for money, you don’t need a Harvard degree to ask me, how are you going to pay me back except you run ‘YÔ‘n KyÔ‘ Ndi Financial Services’.
The variables that will be considered in answering the question of ability and willingness to pay back will however vary with understanding of Finance and Banking. The essential question that caught my attention beyond the initial appeal of the legalities was, did GCFM give money to these people, believing that they could and will pay back?
Let us all pretend we do not know anybody on the list, shall we? So let’s assume, my first almost girlfriend, Asabea (the babe who shattered my heart), starts an engineering firm and walks to me. She looks into my eyes and says, Yaw, I need money to execute a cocoa road contract I won, what will make me give her GH¢169,015,208.69? What will make her merit almost 170 million Ghana Cedis of the depositors’ funds I hold in trust? Of course, the amount will include interest but we can safely say a good amount of principal.
Banking for Dummies teaches that, the 5c of Credit is commonsensical, forget about risk modelling and credit risk gymnastics which can actually predict loan default probability with unbelievable accuracy (I built one and know how to do that very well, by the way).
First principles: character, capacity, capital, collateral, and conditions must be the basis of a credit decision, and I pray GCFM knew this.
So back to Asabea, my almost Ex, I just have to google her to find, “Asabea Contractor, (whom we don’t know whether he is the Director of Ghana Highways in Western Region) has been on Prestea-Bogoso roads since 2013, without executing any good work.
The chiefs and people of Tarkwa have demonstrated on two occasions over Tarkwa Ahweteaso roads, all due to his lackadaisical attitude to work which has dominated every contract he has taken… we are aware, the CEO of Asabe Construction has “blamed his inability to execute good work on spiritual forces, as he blamed “spiritual attacks for delay of his contract on Fijai-Effia Nkwanta”.
Yeah you read right, witches prevented the construction of the road, and funny as it is, I wish I had such an imaginative mind to make it up. One-sided story, you may say, a story nonetheless that should make any analyst ask more questions or at least build in a strong monitoring regime for assets like this in a portfolio.
Let’s assume again that, ModernGhana cannot be trusted about Asabea, how about Core Construction’s own website? Does that knowledge of them warrant GH¢ 171,770,219? These valid questions of character and capacity are questions risk managers must ask, as a matter of fact, bankers are paid to ask them. In as much as I will love to descend into the hard credit lessons as a teacher, I will resist the temptation and only ask, will a reasonable man on the Madina trotro give such amounts of money without a thorough investigation?
And if per chance, a detailed analysis was done and the people were found creditworthy, then what are the conditions and collateral which formed the basis of the transactions? Bankers are conservative for the single reason of prudence, protecting depositors and preventing such a mess we are seeing. In any case, is single obligor limit still a thing of relevance?
Let me conclude, in perhaps the shortest article I have ever written, if you doubt, find the book, ‘Fate of System Thinking’. Let us reflect on the more essential questions; do we have bad bankers who intermediate finance to an economic disaster? or we just have a dishonest society where we don’t pay our just debts irrespective of how much analysis bankers do?
My first lesson in banking was however simple, “just perhaps there are no bad debtors, only bad bankers.” Let us be bold and learn from Adwumawura. Let us all advocate that the receiver publishes the lists. The lists may hold the salvation of the conversations, perhaps in the list, the regulator may be justified and the politics will die out of the conversation.
Let us publish all the lists and let’s pray that we may find reason and not necessary politics, let us pray that the lists may be right!
My name is Yaw Sompa and I believe in Ghana.