Former Second Deputy Governor of the Bank of Ghana (BoG) Dr Johnson Asiama is insisting that measures had already been instituted to deal with the current banking crises.

Dr Asiama’s comments are coming at a time that former Central Bank officials are being criticized over poor supervision resulting in the “sorry” state of the banking sector.

Speaking to JoyBusiness Dr Asiama who was responsible for the supervision of the banks said these claims are not accurate and false, adding that every action that was taken was guided by its regulations and based on available information to them and we did our best to ensure that the right thing was done.

The Bank of Ghana in 2015 started taken a series of measures to clean up the banking sector. JoyBusiness understands that this was based on the Asset Quality Review (AQR).

The current managers at the Central Bank then started implementing some programs that led to the liquidation of two banks – UT and Capital Bank. It led to the appointment of a receiver to take on the “bad” assets of the two banks, while GCB assumed the good assets.

The Bank of Ghana later went on to merge five banks, including Unibank, Royal Bank and the creation of Consolidated Bank of Ghana CBG.

Cost of cleanup and proposed strategies

Dr Asiama argued that, if the current administration had stuck to their plan the cost would have far cheaper than what government is currently quoting.

He said, “I want to emphasize that the high projected cost of the banking sector reforms (estimated at GHC12 billion) could have probably been avoided if the original strategy (Recapitalization and Liquidity Roadmap for the Banking Sector) was continued.

Secondly, “ government should have used a sovereign guarantee to support the 7 – Year and 10 – Year Corporate Bonds issued through E.S.L.A Plc, to clear all the GH¢10 billion debt owed to banks in Ghana and the bulk oil distributors” he added.

The former deputy governor was of the view that “It is a fact that if one does not have full clarity on the extent of interconnectedness, rapidly closing down all insolvent institutions can be very costly.”

What caused the banking crises?

The former governor was of the view that crises came about as the result the indebtedness of the some of the power generating firms to the banks, adding that “a key factor was non-performance of exposures to the VRA, TOR and the BDC’s”.

Dr Asiama noted that this resulted in high impairment and provisions for loan losses and capital deficiency in banks, “this was occasioned by the economic challenges since 2012 which impacted on government fiscal operations such that government could not honour payments to VRA for under-recovery”.

Recapitalization of the banking sector

According to Dr John Asiama, their plan to recapitalize the banking sector program was intended to end by 2019, with a new minimum capital requirement of GHC230 million for banks announced starting January 2017. At the same time, a guideline on the implementation of the Internal Capital Adequacy Assessment Process (ICAAP) was issued to banks. The ICAAP would assess a bank’s risks.

He further rejected arguments that the former Bank of Ghana administration failed to begin the capitalization program, a development that worsens the position of Commercial Banks in the country.

“Clearly, this would have introduced the needed flexibility to have small local banks operating alongside the big banks in Ghana without compromising on solvency or compelling small local banks” he added.

Dr Asiama was of the view that this approach would have avoided the use of the GAT option and the complexities we now have hanging around the neck of the six domestic banks.

He added that “we had planned to give banks up to 2019 to complete the capitalization exercise instead of 2018”.  Dr Asiama was of the view that there would not have been a need for the Ghana Amalgamated Trust (GAT) and the issues surrounding it.

Way forward for the Banking Sector

Dr Asiama argued that the time might come for some sought of a cap to try and check the number of banks in the country, adding that prospective investors could still acquire banks through the Ghana Stock if they so wish at any time.

He also wants the transformation of the Banking Supervision Department into a Prudential Authority and establishing a Financial Sector Conduct. This would help regulate market conduct and promote consumer education.

“A Microfinance Institutions Authority will also have to be established to regulate the microfinance and savings and loans sector while enhancing the ARB-APEX supervisory structure,” he added.