Financial sector tumor not over yet – experts
The collapse of seven local banks; Beige Bank, Construction Bank, Royal Bank, uniBank and Sovereign Bank, UT Bank and Capital Bank, has had a rippled effect on the financial sector.
This is evidenced by the recent comment of the Bank of Ghana Governor, Dr. Ernest Addison who admitted that, a few savings and loans firms have shown signs of insolvency and will have to be liquidated just as has happened with the banks.
He went on to say that the measures for stabilising the savings and loans segment of the financial market “are no different from the measures that have been taken with regard to the banks”, adding that: “If these savings and loans companies are insolvent, they will have to be liquidated; that is the solution for insolvent financial institutions”.
The deposits of these institutions, he said, are not insured; for which reason there has to be a cost associated to dealing with them, with implications on the budget.
“This is where we are in the discussions. What sort of intervention to make in that segment of the market. Who will pay for the cost of resolution in that sector? Once we reach a conclusion, the necessary thing will be done,” he said.
Already, the failure of seven banks is costing the taxpayer well in excess of GH¢7.6billion, which could actually go up since the clean-up exercise is not over.
According to the central bank, there are currently 37 licenced savings and loans companies operating across the country.
Also, some agitated customers of the First Allied Savings and Loans Company Limited were compelled to storm the Manhyia Palace last week to petition the Asantehene, OtumfuoOsei Tutu II.
Some of them previously called on the Bank of Ghana (BoG) to investigate the management of the savings and loans company over its inability to pay its customers for the past three months.
There are similar challenges at UniCredit and Gold Coast Securities.
According to Dr. Sam Mensah, a Finance Economist in a TV discussion said, confidence in the system was clearly shaken as there have been reports of panic withdrawals.
“We need to give the public some more assurances somehow, that their deposits are reasonably safe, but at this moment, I think that confidence is really low.”
The government has safeguarded the deposits of customers of the collapsed banks, and there have been delays in the recovery of funds, Dr. Mensah noted.
“A lot of institutions also have deposits with these seve
n banks and the process of recovering their deposits is very slow. I don’t think the Consolidated Bank is processing the deposits quickly enough. And so there are deposits from various financial institutions with these seven [banks] that went down.”
The lack of customer confidence will be helped by the quick settlement of liabilities, the economist added.
But this may not be enough as some of the savings and loans companies are caught up in the poor corporate governance practices that led to the banking crisis.
“It will certainly help if the liabilities of these seven banks are settled as quickly as possible, but it will not quite solve the problems because some of these savings and loans [firms] etc have their own credit management problems already… Resolving those seven banks will help build up a little more confidence but it will not resolve the problem because of mismanagement and poor credit management of many of these institutions.”
In relation to the banking crisis, some individuals who have ties with the Bank of Ghana (BoG) are currently being probed in relation to the collapse of some seven local banks, Governor of the central bank, Dr Ernest Addison has said.
According to Dr Addison, the Economic and Organised Crimes Office (EOCO) has invited some of these individuals and the findings will soon be released.
“I’m sure EOCO will give us a report on their investigations which includes Bank of Ghana officials, some of whom are retired.
“I’m yet to find out if there are any staff who are working that have been invited by EOCO but I know that some of our retired staff are being interviewed by EOCO,” he stated at a recent press conference last week.
The BoG recently fused uniBank together with Sovereign Bank, The Royal Bank, The Beige Bank and The Construction Bank to form the Consolidated Bank Ghana Limited (CBG).
Also, UT Bank and Capital Bank were taken over by GCB Bank after they were found to be in dire straits.
In total, seven local banks have gone under, as the Bank of Ghana’s 31 December 2018 deadline for all universal banks to recapitalise from the GHS120 million to GHS400 million draws closer.
Directors and managers of these banks have been under probe by EOCO as it turns out that some of the institutions acted in ways that violated the rules and guidelines of the regulator.
Dr Addison stated at a previous Monetary Policy Committee meeting that some shareholders and directors of the banks failed to observe good corporate governance that led to the collapse of those banks.
The Bank of Ghana boss stated that financial institutions that have funds with the collapsed banks are to be taken care of so they are able to meet obligations to their own customers.
“One of the guarantees government gave, even in the case of UT and Capital Bank and recently the five consolidated banks, was for the deposits of financial institutions.
“So, with the deposits – because of this interconnectedness between financial institutions and the impact of this on systemic stability, we were very careful to ensure that financial institutions that are exposed to each other will be taken care of under the arrangements we put in place.
“We are ensuring that all institutions which have their deposits with the affected banks have been guaranteed and are receiving their funds,” the BoG boss stated.