Ken Thompson shoots down dev’t bank idea…says private sector can serve purpose


The economy does not need another development bank along the lines of the Agric Development Bank (ADB) and the National Investment Bank (NIB), Kenneth Kwamena Thompson of Dalex Finance has said.

Reacting to government’s intention to set up a “national development bank” to “mobilise private capital toward agricultural and industrial transformation”, Mr. Thompson noted that the new bank “could end up neither serving the SMEs in the agriculture and industrial sectors nor assist the institutions that truly provide credit.”

The capital for resourcing the proposed National Development Bank (NDB), he said, would be better utilised through existing private sector financial institutions in any combination of ways. These include: credit guarantees, credit insurance, risk-sharing facilities, credit rate capping, technical assistance, and financial institution rating scheme.

“This will get our existing financial institutions to lend to the businesses engaged in the targeted sectors at reasonable rates. Credit risk would be shared but not neglected since institutions would still face pain on default.

This would be the best method to ensure long-term sustainability of the scheme to mobilise credit for the critical areas of the economy. Let us change the behaviour of our existing institutions by changing the incentives scheme in lending to the agricultural and industrial sectors,” he said.

The scheme, he said, could be modelled along the lines of Chile’s Guarantee Fund for Small Businessmen (FOGAPE).

The FOGAPE is a state fund aimed at guaranteeing a certain percentage of the capital of credits, leasing operations and other financing mechanisms that financial institutions, both public and private, grant to employers and organisations that do not have guarantees.

“The fund’s success has been due to many factors, including a strong regulatory and supervisory system; transparency and fairness – for example, guarantees are allocated to financial institutions through a sealed bid auction; an intensive publicity and a promotional campaign launched by the government to explain the utility of the programme.

Additionally, training programmes were provided to commercial banks to acclimate them with FOGAPE and its policies and financial institutions were invited to participate in committees,” he added.

The outspoken Managing Director of Dalex Finance added that the advantage of this alternative to setting up a new bank would be that it would still mobilize funds for the targeted sectors, utilise existing financial institutions and ensure that the distortion of the original missions that afflicted ADB and NIB in their long-term efforts to achieve sustainability, would be avoided.

The saddest learning, he noted, from the experience of the named legacy development banks is that they are some of the most challenged institutions as per the Bank of Ghana (BOG) Internal Capital Adequacy Assessment Process (ICAAP) under the Basel II framework.

“The Bank for Housing and Construction (BHC), which collapsed, NIB and ADB were all established with a strong developmental agenda. Over time they moved away from these objectives because they must survive, generate profits and returns to shareholders. And one of the key reasons was a poor incentive structure,” he noted.

Mr. Ofori-Atta announced in the 2018 budget that government will be establishing a development bank that will be capitalised with US$500million to mobilise private capital towards agricultural and industrial transformation at cheaper rates.

“The thinking process is clear that we need a strong and vibrant and well-capitalised enterprise development bank. This is to be able to support the agriculture and industrialisation drive,” he said.

Analysts quickly criticised the government on the creation of a new bank when the Agricultural Development Bank (ADB), which was supposed to focus on agriculture, and the National Investment Bank (NIB), which was to help industrial development, have changed focus.

But Mr. Ofori-Atta, at the recent PwC Post Budget Forum, noted that the government is instead planning to merge the two development focused banks to form a bigger entity, with some sources telling the B&FT that the government is planning to launch the new bank next month or first quarter 2018.

“We could also look at a possible merger between the NIB and ADB into the National Development Bank to actually finance development through agriculture and industry,” the Finance Minister said.

He added that the successful establishment of the new bank would help aid the realisation of the government’s agenda to create a ‘Ghana Beyond Aid.’

Although government currently hold stakes in ADB and NIB, it is a minority shareholder in ADB, which could pose a challenge to the merger.

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