FULL STATEMENT BY THE MINORITY IN PARLIAMENT
ON RECENT DEVELOPMENTS IN THE BANKING AND FINANCIAL SECTOR…
“Drugs may have destroyed many people; but wrong governmental policies have destroyed many more” – Kofi Annan
1. Good morning ladies and gentlemen.
2. I welcome you, on behalf the Minority Leader and my colleagues, to our press conference this morning to throw more light on the financial sector reforms and also react to some unfortunate and misleading statements made by the Vice President.
3. The people of Ghana are reeling under the unwarranted collapse of scores of financial institutions and are expecting concrete measures to deal with the excruciating unemployment caused by the collapse and the loss of livelihoods, credit and liquidity crunch and dwindling confidence in the financial sector.
4. Ghanaians are struggling to come to terms with how the badly planned and poor implementation of a minimum capital regime has virtually destroyed Ghana’s financial sector.
5. There are unanswered questions regarding how we spent GH¢23 billions of tax payers monies just to collapse financial
institutions, create massive unemployment and turned entrepreneurs into idle hands
6. Unfortunately, instead of answers, the Vice President has adopted his infamous deceptive trait of looking elsewhere to blame for he and the President’s incompetent handling of what has become a full blown crisis.
7. His attempt to blame the Flagbearer of the National Democratic Congress (NDC), H.E John Dramani Mahama, for
the collapse of banks is rather laughable.
8. It was this same Dr. Bawumia who inaugurated Construction Bank in mid-2017 after the Bank was issued a final license by the current Governor, Dr. Ernest Addison. This event was a curious one, because it was unusual for a Vice President to take over such an event, which is always done by the Governor of the Bank of Ghana.
9. Secondly, Beige bank was granted their final universal banking license sometime around August 2017 with a large ceremony also graced by NPP government officials including the current BoG Governor, Dr. Addison.
10. Remember that Alltime Finance Ltd, a Finance House, was also licensed in August 2017 by the current Governor of the Bank of Ghana, only to liquidate it barely two years later. How then do they turn around and blame someone else?
11. With regards to the Vice President’s comments on the recent social media interaction by Former President John Dramani Mahama, it appears the he did not read the statement thoroughly nor listened to the actual interaction in detail, but chose to respond in such a dismissive manner.
12. There is no question about the fact that the banking sector issues and the closure of 9 banks, 347 microfinance and microcredit institutions and the latest 23 savings and loans institutions and finance houses have brought untold economic hardships as well as severe social costs to many Ghanaians.
13. Anecdotal evidence suggests that about 4,500 people lost their jobs as a result of the closures of the universal banks alone. Another 4,000 just lost their jobs as well, due to the closure of 23 savings and loans institutions and finance houses; while a whopping 17,350 people are estimated to have also lost their jobs as a result of the closure of the 347 Microfinance institutions.
14. It is true therefore that the crisis has created deep problems not only for banks, businesses and depositors, but also created a threat to the livelihoods of many of our people.
15. As a leader whose Government began the process of
reforming the Ghanaian financial sector with some innovative, legally responsive and technically sound measures, it is natural for him to step up to the challenge and offer solutions.
16. The Former President raised a number of pertinent questions. These included whether there were no other
options available to resolve the problem. He also asked what part debt-owed by Government to its contractors and suppliers, played in the insolvency of the financial institutions, and to what extent the utterances and posturing of the Central Bank created panic that resulted in a run on many of them.
17. He further asked what role the macro economic challenges and energy sector crisis of the past several years played on the slide into insolvency of some of these banks, and what due diligence the Bank of Ghana did on the situation before commencing the closures.
18. These are legitimate questions to ask by none other than a Flagbearer of the NDC. We would therefore have expected the Vice President to use cultured language that befits his office to provide direct answers to these critical questions to help
assuage the pain of our people.
19. Nonetheless, the Vice President apparently confirmed our good record in addressing similar crises in the past, which was
done in a more tactful way and helped address the crises in the banking sector at the time.
20. Ideally, we would have left it to those who are feeling the pain and those who have lost their jobs to pass the appropriate verdict.
21. However, a simple cost-benefit analysis of the approach adopted to close banks versus our approach of transforming bailout to equity and addressing corporate governance challenges separately, will help clarify our respective positions.
22. The chaotic and often self-inflicting posturing of the Central Bank in handling the banking sector reforms showed a
complete lack of direction and focus in the whole exercise.
23. The BOG didn’t seem to have a clear strategic blueprint and implementation outcomes of the various elements of the financial sector. A very basic question such as what type of
financial system they intended to achieve and the measurable indicators of implementation outcome was not considered.
24. The BOG just like the Government’s approach to major national programmes adopted a ‘reform as you go’ approach
for a very delicate and interconnected industry. No one knew what to expect.
25. For instance, Savings and Loans Companies (S&Ls) didn’t know what to expect except threats of collapse resulting in panic withdrawals. To date Rural and Community Banks who suffered unnecessary panic withdrawals sparked by reckless
comments of the BOG Governor do not know what to expect. S&Ls were collapsed before issues of minimum capital and recovery plans were contemplated by the BOG.
26. Fit and Proper Persons Guidelines were absent for a greater part of the search for investors by banks to recapitalize. There was no idea as to who could invest in banks until about 6 months to the deadline.
27. Clearly, BOG consciously made it impossible for banks to recapitalize so they could be collapsed.
28. The reform agenda, which started under the NDC was built around carefully crafted interrelated pillars to produce a solid,
well capitalized and globally compliant competitive banking sector.
The roadmap covered the following;
i. Conduct of an independent asset quality review by PWC in
2014/2015 and a validation of the review outcome in 2015/2016 to inform policy and reform options to achieve seamless delivery.
ii. A reform of the legal framework for banking sector regulation and compliance consistent with best practice. To this end, three key legal reforms were introduced in the banking sector;
a. The Bank of Ghana Act was amended to improve corporate Governance and to strengthen reporting and parliamentary oversight over the Bank’s activities.
b. We passed the Banks and Special Deposit-Taking Institutions Act, 2016 (Act 930). This law was to improve regulatory compliance, provide for enhanced prudential management and a framework for banking sector resolutions. Act 930 was passed and assented on September 14, 2016 and Section 160 of the Act provided a moratorium of transition of 6 months within which banks had to achieve full compliance.
c. We also passed the Deposit Insurance Act, 2016 (Act 931) to provide an insurance scheme to protect deposits of customers of participating financial institutions in case of collapse of those financial institutions. The aim was to insulate the
Ghanaian tax payer from bearing the costs of expensive bank collapse and resolutions.
iii. The Bank of Ghana announced a comprehensive recapitalization and a clean-up program based on two pillars;
a. A minimum capital requirement of GH¢230 million to be completed by the end of December 2019. This took into account the fact that not all banks required huge sums of money to operate their respective business models. It was expected that banks will be able to meet this capital without
the attended fear and panic that occasioned the current process.
b. We announced guidelines for cleaning up the balance sheet of banks through a risk-based model consistent with the requirements of Basel II Pillar 1 and IFRS 9 (Credit, financial instruments, operational and market risks) and Basel III capital and liquidity framework. These guidelines were referred to as the Internal Capital Adequacy Assessment Process (ICAAP) to provide a second layer of recapitalization in relation to the risks, weaknesses and peculiarities of each bank. This process was meant to produce truly capitalized banks with the requisite liquidity and clean balance sheet to be compliant with the various Pillars and frameworks of Basel and IFRS 9.
29. The NDC Government’s banking sector reform strategy would have been seamless, less disruptive, increased confidence and produce strong banks that are compliant with international standards and best practice.
30. We would have saved all the collapsed banks and financial institutions and averted the needless panic withdrawals that has hit the Ghanaian Financial Sector.
31. It is instructive to note that after abandoning the NDC administration’s main programme of reform, built around the ICAAP, the BOG has just contracted IMF to train its staff to implement the NDC ICAAP. This is after collapsing the banks and Savings and Loans companies that were going to benefit
from ICAAP to survive.
32. The BOG has realized in the face of the weakening of the banking sector through the stringent requirements of IFRS9 that ICAAP is the only option to save the situation.
33. The implementation of the minimum recapitalization without ICAAP is like pouring water into a leaking bucket. The new capital disappears with write-offs imposed by IFRS9. This is evident in the deteriorating capital adequacy of the banks.
34. The BOG itself has had to write off a whopping GH¢3.1 billion from its loan books with several banks experiencing same in compliance with IFRS9. And strangely, blames the previous government for this write-offs.
35. The Ghanaian Tax Payer would have been spared the high cost of this chaotic reform if BOG had listened and followed the reform program initiated by the NDC and the Governor had not been a needless talkative that caused panic and crushed confidence in the financial sector.
36. We wish to ask, “Why would a government be ready to borrow GH¢14 billion to close down banks and a further GH¢7
billion to close down Savings and Loans Companies as well as GH¢2 billion to shut Microfinance companies, but was not ready to use a fraction of this amount to pay off government debts to contractors, which largely accounted for the slide into insolvency in several cases of the collapsed banks”?
37. Is it not clear to the Vice President that it would have been cheaper to address the challenges from their roots while keeping jobs for our people? That is, why will a Government spend GH¢23 billion to put people out of work?
38. We believe that Government should have spent just a fraction of this money to pay off the energy sector debts to the Banks as well as contractors.
39. This would have saved several of the collapsed banks that were owed a lot of money by Government contractors and energy sector SOEs.
40. The Performance of the Banking Sector since January 2019 (After the so called reforms) shows a weak and struggling financial sector. The capital adequacy of the Banking sector has deteriorated from 21.8% in January to 19.1% in June 2019. Capital adequacy as measured by Basel II/III has worsened sharply from 17.5% in January to 16.3% by end of June 2019.
41. The banking sector is reeling under the strain of the implementation of IFRS9 because the recapitalization process ignored the cleaning up of the balance sheets of banks that would have been achieved if they had implemented ICAAP.
42. What we are seeing is the erosion of the capital of these banks through write-off of toxic loan assets on the books of the banks which could lead to another of recapitalization.
43. The banks are struggling with weakening liquidity as measured by the BOG liquidity indicators. Core liquid assets to total assets has deteriorated from 26% after recapitalization to 23.9% whilst core liquid assets to short term liabilities has deteriorated from 34% after recapitalization to 30.6%.
44. These are very worrying signs especially given the level of panic withdrawals in the financial sector. What this means is that for every cedi short-term liabilities (such as customer
deposits) the banks have cash or liquidity to cover only 30 pesewas. This is clearly worrying.
45. The banking sector has been able to lend only GH¢2.7 billion to businesses and household since January to June 2019. This means an average of GH¢450 million loans a month. No wonder businesses are struggling to raise funds to expand their operations and create employment for the teeming unemployed youth.
46. Meanwhile, the Government has continued desperate
attempts to “steal” NIB and ADB through the back door using the dubious Ghana Amalgamated Trust. Government announced that GAT was a private initiative by Private Pension Fund Managers to provide equity to the 5 remaining uncapitalised banks.
47. Government later came to Parliament to seek a sovereign guarantee of GH¢2 billion to enable GAT borrow on the
market to fund the equity in the selected banks. Today, we are told that Government has given GH¢800 million to GAT to buy shares in NIB.
48. The question we ask is why will Government give its money to GAT to come buy Government’s own bank? This is unbelievable.
49. We call on Government to halt all activities relating to its funding of GAT as this is illegal and not approved by Parliament.
50. BOG must stop the discriminatory and predatory regulatory practices. How can they collapse banks that were stronger than the non-compliant banks and allow the non-
compliant banks to still hold onto their licenses?
51. The collapse of the 23 savings and loans companies was a travesty of justice. These savings and loans companies were strong by the end of 2016 and have suffered from acute panic withdrawals and systemic impact of the banking sector mess created by BOG.
52. It was the improper handling of the interconnectedness of these banks to the rest of the financial systems that has resulted in a melt-down of the financial sector.
53. On the “Too big to fail” theory, although the jury is still out there regarding the pros and cons, the fallouts from the liquidation of Unibank for example has shown that the cost of
liquidation has greatly outweighed the cost of simply repaying the bank what it was owed by government and doing so promptly.
54. Clearly, it was not about facilitating a merger, providing credit, or injecting government capital, as would be the case in most “Too big to fail” resolutions. It was as simple as repaying the bank what it was owed, and we really don’t see the argument by the Vice President.
55. Hence, we argue that given the high level of interconnectedness in the case of some of the collapsed
banks, a more careful and patient resolution method should have been considered. Besides, whereas a good number of the collapsed banks may have faulted in some operational procedures or committed some infractions on regulatory rules,
we must be mindful at all times of our responsibility to promote and support Ghanaian enterprise regardless of their perceived inclinations.
56. We totally support the plan by our Flagbearer to hold a stakeholders forum within the first 100 days upon coming back into office to address the effectiveness of the regulatory architecture and to build consensus on gaps as well as needed reforms to promote greater financial stability for growth.
57. We agree with the idea to amend the Banks and Special
Deposit Institutions (BSDI) Act 930 (2016), which was put together by us, based on a careful observation of how the framework has been applied, to enhance its effectiveness.
58. We will also support plans to freeze new bank licenses for a period of time while getting as many banks as possible to
list on the Ghana Stock Exchange.
59. We find laudable the idea to look at the Receivership and Liquidation framework in the Act to make it easier for the Administrator to reverse a decline rather than making it
automatic for an insolvent bank to be liquidated.
60. Finally, we shall support our leader to implement further regulatory reforms to enhance the functions of the Bank of
Ghana while establishing a Financial Sector Conduct Authority to regulate market conduct and ramp up consumer education. We will push ahead with the financial inclusion and innovation agenda, by setting up an appropriate authority to regulate
microfinance and allied sectors, while developing the rural banking system and enhancing the role of the ARB-APEX Bank’s supervisory structure.
61. We remain steadfast in our commitment to develop the business environment and to aid the growth of Ghanaian enterprise. We wish to echo the call by our Flagbearer for the veil on the beneficial shareholders of the Ghana Amalgamated Trust (GAT) to be lifted and to cease the ‘predatory’ bail-out assault on the remaining banks, which include state-owned
62. We are also calling on all those NPP government officials, some of them strangely very senior, who have taken large sums of money from some of the collapsed banks apparently
to support their political campaigns in 2016, to do well to refund those monies to the Receiver so that depositors could be paid promptly. We do have information on these but will rather they do the honorable thing.
63. Finally, we support calls for a full-scale inquiry into the collapse of these financial institutions and their effects on the economy.
64. Thank you.