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The Financial Sector Crises And Issues Arising.

gseneadza 06/29/2020

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BACKGROUND:


Before the exit of the NDC Government in 2017, there has been crises in the financial sector of the economy. A lot of customers of these failing financial institutions had difficulties accessing their funds. This situation presented an opportunity to the then opposition NPP which they’ve judiciously exploited to their advantage by blaming the situation on the ruling NDC and subsequently promising to make sure the aggrieved customers got their monies and the management of those institutions reprimanded. 


The promise attracted votes for the NPP and partly brought them to power. Unfortunately, this promise is yet to be realized after 3½ years even though the NPP Government initiated processes that oversaw the auditing of the entire financial system, leading to the revocation of the licenses of majority of our indigenous financial institutions. This however, rendered over 10,000 workers jobless coupled with the fact that, these workers also had their funds lodged with these institutions at the time of their closure. 


REVOCATION OF LICENSES:


The Bank of Ghana(BoG) since 2017 has been implementing a number of reforms it insists will strengthen the banking sector and the financial sector at large. These reforms included the introduction of an increased minimum capital requirement which is now pegged at GH¢400 million. As part of its efforts to restore confidence in the banking and specialized deposit-taking sectors, it embarked on a clean-up exercise in August 2017 to resolve insolvent financial institutions whose continued existence, it claimed, posed risks to the interest of depositors. This aggressive move they said, was necessitated by the outcome of a comprehensive assessment of the Banks, Savings and Loans and Finance House sub-sectors where serious challenges and breaches were found.

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The BoG also undertook other reforms in the areas of loan reclassification and loan write-offs. These reforms among others have led to the regulator revoking the licenses of nine(9) banks which fell foul of the regulator's requirement. The banks include UT Bank, Capital Bank, Beige Bank, Royal Bank, Construction Bank, Unibank, Sovereign Bank, Heritage Bank and Premium Bank. It also gone further to revoke the licenses of 347 Microfinance companies, 39 Microcredit companies, 15 Savings and Loans companies, 8 Finance House companies, and 2 Non-Bank institutions. As a result, 4.6 million depositors had their monies locked up.


RECEIVERSHIP:

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Thus, in August 2017, the Bank of Ghana (BoG) gave GCB Bank Ltd the green light to acquire two(2) local banks (UT and Capital Bank) due to severe impairment of their capital.

In August 2018, the Bank of Ghana consolidated five(5) of the remaining seven(7) local banks(Beige, Unibank, Construction Bank, Royal Bank and Sovereign Bank) into what it calls the Consolidated Bank Ghana Limited(CBG)

Mr. Eric Nana Nipah is the receiver of the 347 defunct Microfinance Companies and 23 Savings and Loans and Finance House Companies.

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THE COST OF THE CLEAN-UP EXERCISE:


From the 2020 budget, according to the Finance Minister Ken Ofori-Atta, over GH¢13 billion (GH¢16.4 Billion according to Bloomberg) was spent in the banking sector clean up. There has been other fund requests by the Minister from Government through Parliament as top up for the exercise. It’s worth noting that, the total funds of the 4.6 million depositors is about GH¢9 Billion. Thus, the Government saw it prudent to spend GH¢16.4 Billion just to “save” GH¢9 Billion. Thus, in essence, these “failed” financial institutions needed just GH¢9 Billion to stand on their feet once again (although some of the banks were owed huge amounts by Government).

The BoG at the time claimed these drastic measures were the only way to save depositors monies and further strengthen the sector. But according to the BoG's banking sector report, deposits as the main source of funding for the banking industry, stood at 17.1 percent in October 2019, marginally lower than the 20.7 percent increase in the previous year. This report means that although bank total deposits still grew in the period under review, the rate of growth fell short of what was achieved a year earlier. 


Now that the collapsed banks and other specialized deposit-taking institutions have been put under receivership, recapitalized and given new management, the financial sector is gaining confidence and making profits steadily. Thus, it’s now in good standing to start paying off depositors hence as an official communique in this regard, the president of the republic, H.E Nana Addo-Danquah Akuffo Addo in his Christmas message to Ghanaians ( on 25th Dec. 2019), stated that all customers will be paid their locked-up funds in full(100%).


REFUNDING DEPOSITOR’S MONIES:


In realizing this pledge, it will be recalled that government has provided a combination of cash and bonds totaling Five Billion Ghana Cedis (GH¢5,000,000,000.00) to pay depositors of the collapsed financial institutions through Consolidated Bank Ghana(CBG).

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According to CBG's payment modalities, funds in excess of the threshold for cash payment will be held in special holding accounts opened for the depositors and paid in equal instalments every six months over a five-year period after the initial payment is made in March 2021. Initially, the threshold for cash payment was GH¢10,000 but was later raised to GH¢20,000 and subsequently to GH¢70,000. Yet there are people who’s claims has been verified but couldn’t get their monies although most of them have their funds below the threshold. CBG says Government wasn’t able 

The bank has established a mechanism for those depositors who wish to obtain cash ahead of the liquidation schedule to discount those expected cash flows with the bank at a very competitive rate. However, it turned out that, the “competitive” rate is a whopping 50%! Thus, to get all your money that is above the cash payment threshold, one would have to sign-off half of his/her money to the bank(Government). Otherwise, one would have to wait for a 10% installment payment every six(6) month for five(5) years (five years bond). This has generated a lot of issues at the banks and talks on radio as customers weren’t getting access to their 100% funds as promised by the President.


However, responding to questions of depositors who still had their moneys locked up, Dr. Ernest Addison (Governor, BoG) said 95 per cent of depositors had been fully refunded. Unfortunately, this 95% only represents those with smaller amounts (GH¢20,000 and below). Furthermore, Dr Addison said the challenges for the repayment of the full amount for the remaining five per cent had to do with the resources the government could afford to provide upfront. In conclusion, he said the hope therefore was for the receivers to be able to recover the funds from individuals, shareholders, and directors so that all depositors would receive their full amount.


Thus, the NPP government under the leadership of President Nana Addo-Dankwa Akuffo Addo through Bank of Ghana, succeeded more in driving business men and women out of business and further making life difficult for them by forcing them to loan their monies in the form of bonds to it. Notwithstanding the job losses in the financial sector, listening to the woes of these people is very depressing as most of them said their banks have been meeting their transactional needs prior to the revocation of their license. The question they kept asking is where they’ve gone wrong. 


MY OPINION:


It appears the NPP Government which have wet appetite for borrowing, DELIBERATELY collapsed some of these financial institutions purposely to force Ghanaians to lend their savings and investments to them by means of hooking them to compulsory 5 year bond. This is because some of the institutions were delivering at the time, while others were just waiting for funds owed them by Government itself hence there are other ways to handle the little issues without closing down the banks. Also, the fact that they were willing to spend GH¢16.4 Billion to save GH¢9 Billion instead of recapitalizing those institutions and beefing up monitoring and regulatory duties of the BoG to make sure the banks are prudent means there are other interests of this NPP government in the financial sector that is different from just “saving” the sector.


Those that will argue that BoG is autonomous hence it’s actions and inactions can’t be linked to the Government of the day, we’re not oblivious to the facts that, the primary role of the Central Bank (BoG) is to implement financial and monetary policies of the Government. This is why Government appoints the Governors and Board of Directors.


POINTS TO NOTE: 


• The 5% of the depositors who couldn’t be paid their monies in full, are those that are hard-hit by this because their funds are far more than that of the 95%. 


• Also, out of the GH¢9 Billion, Government gave out GH¢5 Billion for payment thereby holding back on the GH¢4 Billion balance.

 

• Out of the GH¢5 Billion (which is made up of cash and bond), the amount in bonds that is meant for the 5% is higher than the cash meant for the 95%. 


• This means Government is currently owing depositors about GH¢6.5 Billion out of the GH¢9 Billion (paid about GH¢2.5 Billion Cash). This is the true state of the predicament of the 5% that are heavily hit by this disaster.


The victims are in a very bad place right now due to this exercise. Some are sick and needed the money to take care of themselves. Others are totally broke because they’ve lost their businesses due to the locking up of their business capital. Unfortunately, some of them will die before the 5 years, leaving their monies behind. When has it become a crime to invest into the financial sector of the economy???

Source: opera.com
The views expressed in this article are the writer's, they do not reflect the views of Opera News. Read more>>
Top Comments
AnkamahEvans · 06/29/2020
so the money the government provide is finish.oh God Ghana

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