Collapsed banks Directors to be prosecuted
However, he noted that there will be a “careful” and “meticulous” way to go about it to prevent loss through some court proceedings.
The Finance Minister speaking at a forum organized by the Danquah Institute in collaboration with Citi FM and Citi TV last week, on the current clean-up in the banking sector alluded that, plain thievery on the part of shareholders and directors of some banks in the country is to blame for the current banking crisis.
“The heart of the matter is that it is really plain thievery on the citizens by certain bank shareholders and directors, also, with a clear compromise of the regulatory leadership on a scale that has not happened before in our country’s history,” he said.
The Bank of Ghana within the last twelve months has revoked the license of seven defunct banks.
According to the central bank, whereas some of the banks had become “deeply insolvent,” others acquired their licenses through suspicious means.
Government has also issued about GHC8 billion in bonds at the expense of taxpayers to clean up the mess left behind by the affected banks.
In his speech, Mr Ofori-Atta said government is solidly behind the reforms being undertaken by the central bank saying it is in line with government’s vision of building a robust financial sector.
He also assured that those behind the collapse of the seven banks will not go scot-free saying they will certainly be prosecuted to serve as deterrent to others.
“That bank shareholders and directors were diverting depositor’s money for personal gain and that there were no checks and balances in how inter-party transactions were done and bank directors and shareholders could lend other peoples’ money to themselves without due process. Other times people will show money as evidence to set up banks and turn around to take those same deposits leaving the bank with little or no working capital.”
“We have to do this to ensure that we protect safe and credible institutions of which there are many we have to ensure that depositors and investors don’t lose their money. We must make sure that there is prosecution for all those who are involved. This really is about the destiny of our nation,” he added.
The Finance Minister also rejected claims that the GHC400 million recapitalization policy directive by the Bank of Ghana to the commercial banks is to blame for the financial crisis.
“The push toward recapitalization has nothing to do with the problem we are trying to solve. That’s a whole different issue to ensure that we make the banks stronger so that they can continue with the business of intermediation that is being required,” Ken Ofori-Atta added.
The forum was themed: “The banking sector clean-up – Are depositors safe?”
He reiterated the Ministry’s confidence in the management of the banking system although excited about the public scare and interest. According to him, it keeps depositors “on their toes and you also become a lot more discerning where you take your money.”
While guaranteeing that clients’ deposits are safe, the Finance Minister mentioned that “sophisticated” investors who are skeptical about their monies will have the necessary steps taken to trace their investments.
“So nobody is going to get out of the net.” He assured.
Meanwhile, Dr Eric Osei Assibey, a Senior Research Fellow at the Institute of Economic Affairs (IEA), has indicated that, signs of the of the collapse of banks were evident since the year 2012.
Speaking at same forum, he mentioned that, the currency depreciation to about 39% in 2014, coupled with a high-interest rate of about 35% were all contributory factors to the collapse of banks as they had
too much to lend and a high rate of non-performing loans.
“I wasn’t too surprised to see some of the banks collapsing, right back from 2012, the signs were very clear, when you have a currency depreciation of about 39% in 2014, and you have your interest rate going up to about 35%, this meant banks will be making more profit because they have a huge appetite to lend,”
“Between 2012 to 2013 the average growth in credit supply was about 50%. When the interest rate goes up, and you begin to give too much credit, you expose yourself to high credit risk, the credit rate default will be very high,” Dr Osei Assibey explained.
He added the high rate of non-performing loans was another contributory factor to the collapse of banks, adding that the Bank of Ghana’s recapitalization measure was a step in the right direction.
The BoG on Wednesday, August 1, 2018, liquidated five banks and merged them into what the BoG name ‘Consolidated Bank Ghana Limited.
The banks are BEIGE, Sovereign, Construction, Royal, and UniBank.
According to the Bank of Ghana, the reason for the merger includes liquidity challenges, the inability of the said banks to meet the Ghc400 million minimum Capital requirement, and the fact that some of these banks obtained their licenses under false pretenses and with non-existent capital.