Terror oooh Terror! Terror oooh Terror! Terror is coming oooo. Terror is the nickname of a senior high school’s headmaster. He was strict and firm in his relationship with his students. He went all-out to ensure every student followed the school’s rules, but they tried to outwit him.
They dared not go to the school’s gatherings late. When they did and without justifiable reasons, no amount of the “pampers” loaded shorts could save their buttocks. Parents and guardians were always in his office to seek an audience with him regarding their wards who had misconducted themselves, but he hardly compromised on his stance.
Indeed, his principle had always been that those who spare the rod of discipline hate their children. During Parent-Teacher Association(PTA) meetings, he reiterated his resolve to instil discipline in his students at all times.
To him, the rule by which the wise regulate their conduct is a fountain of good life and happiness. Even though he had his shortcomings, he was, indeed, the chief disciplinarian worth remembering. I believe every one of us might have had same experiences with our tutors at the high school if not now.
With Terror, we can draw a bond of mutual relationships between three stakeholders-the headmaster, his students and parents(guardians). Was the headmaster’s act of maintaining discipline in the school for his personal interest, or in the students’ interest to be law-abiding citizens? By that, was he acting in the parents’ interest and for that matter the larger society’s interests?
Let us take the understanding of the school’s set-up to use the headmaster as the leadership of the Central Bank, the students will serve as the financial institutions while the parents (society/government or the public) represent depositors.
The inference we can draw from this linkage comes in handy to appreciate whose interest should there be the use of the rod(regulations) in the threesome financial relationship between the Bank of Ghana, the banks/NBFIs and the depositors.
Why the Rod
James Madison, the fourth US President in living memory stated that “if angels were to govern men, neither external nor internal controls would be necessary.” This terse statement, to my mind, means that human beings as we are, have our weaknesses be they in our inter-relationships with others in private, public life or business.
We desire to take certain decisions to our personal or company’s benefits, but these choices, sometimes, may not be in line with the established order and, therefore, require checks and balances to ensure there is orderliness. For instance, students will always want to have their way regarding their social behaviour in school, but the headmaster intervenes to control them by applying the school’s rules.
The issue is that when he fails in his responsibilities and the students’ misconducts persist, the end results negatively affect the larger society which also has the reciprocal duty to ensure that the students live up to the expectation.
It is in this regard, that the Bank of Ghana plays its supervisory roles to safeguard a sound banking sector. It demands from the banks and the non-bank financial institutions to comply with the regulations or be sanctioned since any dereliction of duty on its part has the rippling effects on the public (depositors, society or government etc.) including itself.
The revocation of the licences of UT/Capital banks and other regulatory actions of the Bank in recent times reinforce the wisdom in Madison’s statement that there are no “angels” in the management of institutions. Madison’s statement should be considered as ingrained in the human nature and remain as such.
This means that financial institutions as human entities will always have some managers and employees with the strong tendencies to flout the laws regardless of the implications. This should be the general understanding the public must have about the financial institutions when they express their emotional outburst regarding mishaps in these financial institutions.
Despite their concerns are legitimate, should that cause apprehension and lead to loss of confidence in the sector? The debtors among them have the obligations to repay their loans especially if there is no justifiable cause to refuse.
The repayment of their loans helps the financial institutions to avoid the high non-performing loans which give rise to capital impairment. Capital impairment, as we know, breaches the regulatory requirements and cause the headmaster-regulator to withdraw the licences (as the punishment).
The connected fact is that when these institutions fail, the liabilities come back to haunt everyone (the regulator, shareholders depositors/ the public) who constitute the stakeholders.
In fact, it has been reported that the International Monetary Fund(IMF) supports government’s plans to sell 1.6 billion cedis ($362 million) of bonds to settle the liabilities of the erstwhile UT/Capital Banks. The crux of the matter is that this will add to the public debt for us to pay as citizens. It is worth asking again, in whose interest should the rod apply?
Holding the rod
It is worth noting that the management of financial institutions often raises issues concerning certain directives from the Central Bank. At best, they feel that some of the directives are rigid and out of touch with the reality. The Central Bank, on the other hand, finds its defence in John Colley’s statement that “you can’t regulate what you don’t understand.”
This latent rivalry causes some managers to treat the Bank’s rules with disdain and take excessive risks while it (Bank) also endeavours to enforce sanctions towards maintaining discipline in the sector.
Meanwhile, the intentions behind the use of the rod can be wrongly interpreted. Hence, subject to misunderstanding and perceived high-handedness. It requires tact or balancing act, proper supervision and enforcement to make it effective. That is why the letter and spirit of the Central Bank’s reforms should be clearly understood by other stakeholders to achieve the intended purposes.
In fact, the Bank’s ability to ensure compliance with its decisions helps to build trust and confidence in the system but submission to its regulations (the rod) comes at the backdrop of transparency. Thus, regular stakeholder consultations facilitate a common understanding of the policies such that fair-minded disciplinary actions are acceptable to all without forgetting the benefits thereon.
In this regard, I consider as timely and heartwarming the thoughts of La Porta et al that “these laws and the quality of their enforcement by regulators and courts are essential elements of corporate governance and finance… in contrast, when the legal system does not protect outside investors, corporate governance and external finance do not work well.” Indeed, upon deeper reflection, we will realise that applying the rod is for our common interest and, therefore, requires compliance and accountability from all of us.
Before we end the conversation, I want us to have a teaser with the 400k for the recapitalisation. You may have realised that our directors have been attending crunch meetings and exploring all the financing options in the corporate finance literature, in a bid to raise more funds for the minimum capital.
You will also notice that the first quarter-end of March 2018 financial results have not fetched much income as we expected. All these have given them sleepless nights and tensed up counting down to the 31 December 2018 deadline. We must calm their nerves. So, we propose this local and innovative financing option. We call it the “Kpakpakpa” movement for “Addison 400 million”.
They should cancel all the zeros in Acquah Gh¢7m and Gh¢60m, cancel all the zeros in Wampah Gh¢120m. These cancellations live us with 7-6-12. Now, cancel all the zeros in Addison 400m itself. We are left with 4. We need 4 years to recapitalise because we are local players. Hahaha!
It is now a football match between us-the Local Banks United FC and the Foreign Banks FC playing in a 400m capacity-stadium with our special FIFA referee and Governor, Addison officiating with many red cards. We don’t want to go into relegation.
Alright, 4 years, 4 numbers: 7-6-12-4. Banker-to-banker lotto jackpot. Get ready, do the permutations. Stake the numbers. Bingo oooo! All the 4 numbers dropped for a windfall just like that. The mother of all bonanzas. 400million Wahala!
Until now, I never knew the 400million is a blessing in disguise. So far, we used it to construct the 400 million-capacity theatre and later constructed the 400 million- capacity prayer-basilica without forgetting about the newest and the magnificent 400million-capacity stadium.
As partners in nation-building, we relied on the National Lottery Authority’s Motto: “Development through games” to raise Gh¢400m each for every local player. From the Lotteries to Bank of Ghana, we can drive for less than 4 minutes to go and recapitalise. The rod there! the 400m here! They are all in our interest.
By Gershon P. Anumu