Prof. John Gatsi, the head of finance Department of University of Cape Coast has said the approach used by the central bank and government at the early stages of the crisis in the financial sector is the cause of the “unending panic withdraw”.
“The greatest challenge created by the approach used by the BoG and government is low confidence leading to unending panic withdrawals. Most of these banks are now in liquidity and confidence trap” Prof. Gatsi
Speaking in interview on Radio Gold on government decision to bail out some local banks, Prof. Gatsi said that “approach to protect local banks was the prudent approach proposed to government and Bank of Ghana since 2017 but both government and BoG refused”.
According to him, “the refusal [of BoG and government] deepened the difficulties of these banks over the period”
“It is unfortunate these banks and their workers have to suffer the worse form of psychological trauma before this bailout which was suggested long ago as a solid alternative.” – he added
On the bail out of the Agricultural Development Bank, this is what Prof Gatsi has to say:
It is surprising that Agricultural Development Bank which announced that, the bank has now met the new minimum capital requirement is also receiving the said bailout to capitalize. Something must be wrong as BoG and Ministry of Finance are to be part of the board and shareholders who met to arrange for the recapitalization.
The Bank of Ghana has this year alone taken over five banks, Sovereign, Beige, Royal, UNI Bank and Construction consolidating them into Consolidated Bank Ghana after Ghana Commercial Bank took over Capital and UT Banks in 2017.
Read the full transcript of the interview as sighted by Awake News:
Prof. John Gatsi on bailout for some local banks on radiogold 2nd January 2019 edition
This approach to protect local banks was the prudent approach proposed to government and Bank of Ghana since 2017 but both government and BoG refused. The refusal deepened the difficulties of these banks over the period. The greatest challenge created by the approach used by the BoG and government is low confidence leading to unending panic withdrawals. Most of these banks are now in liquidity and confidence trap. It is unfortunate these banks and their workers have to suffer the worse form of psychological trauma before this bailout which was suggested long ago as a solid alternative.
Those who follow the developments in the financial sector will not question the principles of transparency, disclosures and skewed benefits about the bailout.
It is surprising that Agricultural Development Bank which announced that, the bank has now met the new minimum capital requirement is also receiving the said bailout to capitalize. Something must be wrong as BoG and Ministry of Finance are to be part of the board and shareholders who met to arrange for the recapitalization.
Some of the local banks with BoG and government of Ghana shareholding in excess of 90% should have met the new minimum capital by offloading about 39% to private sector long ago to capitalize. A call by BoG to recapitalize is actually a call on shareholders to capitalize their banks. It also means a call on BoG and government of Ghana to recapitalize banks in which they own shares. The question is why have BoG and government not complied with their own directive to capitalize?
Government needs to review the approach to single treasury account policy which has moved funds of some state institutions from local banks. The review to reverse a certain proportion of such funds back to the local banks will contribute to activating liquidity trust and restoration of confidence among local banks. Prompt payments of arrears especially to government contractors both past and current can revive liquidity and credit in the banking system.
More details about the bailout is needed.
A government bailout to local banks is not free money, therefore should necessarily and indeed be accompanied by management and board restructuring. However, the government should also indicate to workers of the recipient local banks whether or not this bailout will be followed by retrenchment and other labor rationalization measures.
Government must work asidiously to close the chapter on the financial sector to free the sector to effectively regain its role in real sector activities
Source: AwakeNewsOnline.com | Efo Korsi Senyo