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Ghana back pedalling out of banking crisis
ACCRA, Aug 19, 2018 (BSS/AFP) – Ghana is backpedalling out of a banking
crisis as the government takes on debt to save a troubled sector and vows to
punish the executives responsible.
Early in August, Ghana’s central bank revoked the licenses of five local
banks and combined them into one — the newly created state-run Consolidated
Bank — issuing 5.8 billion cedis ($1.2 billion) in bonds to clear their
debt.
The Bank of Ghana (BoG) accused the collapsed banks of a range of issues,
including poor corporate governance, questionable transactions and dishonest
reporting.
The merger was just one step out of many that President Nana Akufo-Addo’s
government has been forced to take in order to reform Ghana’s rotten banking
sector, brought close to collapse as a result of bad governance and weak
lending.
This past week, Ghana’s deputy central bank governor Elsie Addo Awadzi said
in an interview that law enforcement agencies will “further investigate
criminal behaviour” connected to the failed banks.
Ghana faces a “now or never” decision to clean up the banking sector,
economist Eric Osei-Assibey told AFP.
“This central bank is carving a niche for itself. It is beginning to bite
and that alone could engender some confidence in the medium and long term,”
Osei-Assibey said.
– ‘Good progress’ –
The banking intervention will add to Ghana’s already high debt burden, said
Razia Khan, Africa economist at Standard Chartered, in a note to investors
earlier this month.
Ghana is currently in its final year of an IMF bailout totalling almost $1
billion, with its debt as a percentage of gross domestic product hovering
over 60 percent.
Along with the Consolidated Bank loan, the central bank will give support
to other banks in order to help them meet a minimum capital requirement of
400 million cedis by the end of 2018.
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Despite the turmoil, “Ghana has made good progress on fiscal consolidation in
recent months”, said Khan.
“The action taken to strengthen the banking system is likely to be viewed
as a necessary measure by the fund and we do not expect this to disrupt
disbursements under the current IMF programme,” she said.
If Consolidated Bank is run properly, it may even play a positive role in
the economy, said Souhir Mzali, Africa editor at Oxford Business Group, a
London-based research firm.
“It might transform from a debt burden to an asset by the time the
government is expected to offload shares in 2020,” Mzali said.
– ‘Lost confidence’ –
Of course, there will be consequences.
“It’s going to affect banking habits,” said Kwesi Jonah, senior research
fellow at the Institute of Democratic Governance in Ghana’s capital of Accra.
“Some people will lose confidence in the banking system altogether, other
people will be more inclined to move towards the foreign banks,” Jonah said,
blaming the previous administration for letting the sector rot.
“There was lack of political will to deal with the problem,” he added.
President Akufo-Addo was voted into power in 2016 on a pledge to revamp
Ghana’s economy after it had to turn to the IMF for a bailout the year
before.
Ghana became Africa’s fastest-growing economy in 2017 thanks to a surge in
oil and gas production, recording a blistering 6.8 percent growth in the
first quarter of this year.
But there is no getting away from the fact that West African gold and cocoa
producer still has work to do in order to restore integrity to the tarnished
financial sector.
As Ghana’s Finance Minister Ken Ofori-Atta put it this past week, the days
of being “soft” on laws are over.
“Hopefully (with) what we are going to do in the banking sector, everybody
will begin to realise that those periods are gone.”
BSS/AFP/SR/1615 HRS