The dean of accounting and finance at the University of Professional Studies, Accra (UPSA), Professor Isaac Boadi, has strongly defended the decision by the government of President Akufo-Addo to sanitise Ghana’s banking sector, and dismissed claims by a section of the public that the decision on banks was not to the country’s benefit.
“The recapitalisation of some banks through the cleaning exercise undertaken by the Bank of Ghana was the best,” Professor Boadi said when he appeared on The Next Chapter Show, hosted by Dennis Miracles Aboagye, on Sunday (28 July 2024).
“The entire banking sector would have caved in if the central bank had not undertaken that clean-up exercise in 2017.”
Professor Boadi argued that the banking sector clean-up was based on a report the Akufo-Addo administration came to meet and the government had to act swiftly on it.
“In the year 2015, the Bank of Ghana assessed all the banks in the country. The Assets Quality Review exercise found out that ten banks were in crisis and had to be folded up through recapitalisation to save depositors’ deposits,” Boadi said.
He also argued that the reasons for the challenges the ten banks faced were insolvency because of low liquidity, mismanagement of funds injected into them by the central bank and the lukewarm attitude towards the mismanagement of those banks by the Bank of Ghana’s supervisory division.
“Per the Assets Quality Review report, those banks ought to have been collapsed or consolidated before 2016, but this was never done, for reasons yet unknown. The current government only came to implement the recommendations of the report, hence the clean-up exercise.”
The report, he added, also highlighted third-party-related transactions as one of the reasons that led to the affected banks facing challenges. Funds injected into the ailing banks were used to open other banks and engage in unrelated business, which affected the capital ratios of the lender banks. Some loans were given to certain individuals without collateral, he said.
“It is important to state that the delay in the implementation of the recommendations of the Assets Quality Review report adversely contributed to the level of crisis the Akufo-Addo administration came to meet in the banking sector,” Professor Boadi said.
He emphasised that there was no way banking in Ghana could be rescued, other than the way it was done. The Bank of Ghana, under the past (NDC) government, had given liquidity support to the ailing banks on more than one occasion but these monies went down the drain because, again, they were misused by the owners and managers of those banks.
“The then Bank of Ghana governor’s delayed intervention allowed financial malpractices to go unchecked for too long, exacerbating the crisis in the sector,” Professor Boadi said. “Blaming the Akufo-Addo government is not fair, for they rather saved the sector, contrary to what some people have been saying.”
Reform, recapitalise, revoke
The Bank of Ghana (BoG) began a sector clean-up in Ghana in August 2017 to stabilise and strengthen banks.
The clean-up was in line with the BoG’s mandate to support economic growth by promoting the stability and soundness of the financial system.
The Bank of Ghana spent GHC21 billion to undertake the clean-up. This included regulatory reforms, recapitalisation and the revocation of licences for several financial institutions:
* Domestic banks: ten domestic banks were closed
* Microfinance: 347 microfinance licences were revoked
* Savings and loans: licences of 23 savings and loans companies were revoked
* Finance companies: licences for 23 finance companies were revoked
* Universal banks: licences for 16 universal banks were revoked
The clean-up of the banking sector undertaken by Bank of Ghana saved the deposits of 4.6 million people which would have been lost if the central bank had not intervened.
In the process, UT Bank and Capital Bank were taken over by GCB Bank. Sovereign Bank, the Beige Bank, Premium Bank, Royal Bank, Heritage Bank, Construction Bank and UniBank had their licences revoked and were merged under Consolidated Bank of Ghana.
Bank of Baroda voluntarily left the sector. Six other banks underwent mergers: First Atlantic Merchant Bank with Energy Commercial Bank, OmniBank Ghana with Bank Sahel Sahara Ghana, and First National Bank with GHL Bank Ltd.
On the revocation of GN Bank’s licence, Professor Boadi said that, in any other country, the bank’s founder, Dr Papa Kwesi Nduom, would have been arraigned before a court of competent jurisdiction to account for his role in the collapse of the bank and other institutions under the Groupe Nduom umbrella.
“I am of the view that the owners of GN Bank, as it happened in the case of Capital Bank, should have been sent to court for their roles in sinking the bank. They should have been brought to book long ago,” Professor Boadi said.
Reporting by Wilberforce Asare in Accra
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