In good times and in bad

Harold Kushner, a prominent American scholar, is credited with the book ‘When Bad Things Happen to Good People’. In dedicating the book to the memory of his son who died at a tender age, Kushner sought to use his life-experiences to offer comfort to people during difficult times. Based on Kushner’s literary work, and serving as his mirror of life, we can use it to watch far and near and then assert that bad things sometimes befall good people, besides their businesses.

In relating the philosophical underpinnings of Harold Kushner’s viewpoint to recent happenings in the banking sector, it would not be out of place to say that bad things can work against good people, banks or deposit-taking institutions that have had good times. For instance, the seven collapsed banks at certain periods in their existence recorded good financial performances, won prestigious awards, paid taxes regularly, were good corporate citizens and affected many lives positively.

Indeed, history will confirm those remarkable footprints. Many people least expected that they could lose their banking licences considering these past records and the business acumen of their founding fathers, shareholders or management’s depth of skills. The bad times regarding revocation of those banks’ licences have been characterised by uncertainties. On the heels of that, we have witnessed panic withdrawals. The times have been such that even financial institutions in good standing with good prudential returns at the Bank of Ghana had to issue press releases to dismiss negative social media stories that they are collapsing.

Subsequently, results from the third-quarter (Q3) performances have begun to give strong indications that many banks will cross over to 2019 with the new minimum stated capital of Gh¢400million. The experiences from the bad times guided many of them to deploy their resources prudently.   These give a glimmer of hope that stability and confidence is gradually coming back with the good times, when strategic decisions can work according to plans.

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Thus far, it would be foolhardy to conclude that the headwinds are over when there is a glaring fact that a few banks (both foreign and local) may not be able to obtain the GH¢400million minimum capital requirement by 31 December 2018. Circumstances of the times will determine their operational status after the deadline. Aside from that, the wind is close to settling on other deposit-taking institution (finance houses, savings and loans and microfinances) sectors.

As to whether this will happen before end of the year or just after the yuletide, it is certainly in the air but transient when it eventually occurs – like the discomforting harmattan season. This brings to the fore the daunting task of how companies which are not directly be affected can manage their liquidity positions (in the coming days) to help them stay afloat. This is imperative in the face of the pervasive systemic and reputational risks in the non-bank deposit-taking institutions sector.

Lend less, recover more

One of the age-old problems confronting the non-bank deposit-taking institutions is the issue of high interest rates, with the consequent effects of high non-performing loans (delinquent loans). Though mainstream banks’ interest rates are also high, they are relatively higher in the non-bank deposit-taking institutions sector. Since this peculiar situation has accounted for the reasons why some of them lose their licences, those in good standing require a multi-faceted approach to maintain a healthy loan book and improve their liquidity.

One of the strategies which can be used to withstand the bad times is to invest in short-term money market instruments (Treasury bills etc.), do prudent lending for projects (activities) with short-term maturity periods; or temporarily suspend giving out loans while engaging in aggressive recovery exercises.

Since the beginning of the bad times, many ill-motivated borrowers have been dragging their feet regarding the repayment of their loans. This situation is very prevalent in the deposit-taking non-bank financial institution’s sector. Those borrowers must be pursued with all vigour, especially when they obviously have the resources to repay their debts.

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As required by law, lenders don’t necessarily have to resort to court to dispose of collaterals used to secure loans. Hence, considering the prevalent difficulties, lenders must avoid the frustration associated with the long time involved in litigating recovery cases in court, and the drudgery of looking for buyers for property used as collaterals. They must hence appoint property managers as receivers to lease them out. Property managers know the dynamics of their market and can help lease those property to good tenants (individuals or corporate) for rental incomes that can help reduce the non-performing loans.

What’s more, companies will need to take tough decisions and increase their penal rates to discourage the needless and premature termination of investments (fixed deposits or placements). This will help manage the imbalances between panic-withdrawals and the cost of overnight borrowing to meet the contingencies that prudential reserves cannot accommodate in the interim.

Diligent with the press

Many incidents of panic-withdrawals were influenced by the misunderstanding of media reportage on the bad times in the banking industry. There were situations when some directors and managers of financial institutions expressed their views on radio to discourage panic-withdrawals. Regrettably, depositors misinterpreted the candid opinions to mean dire-strait liquidity crises therein – hence, they besieged the companies afterward for their investments.

Managers need to remain focused and adopt the ‘silence is golden’ principle as appropriate. Indeed, bad times call for strategic thinking and hands-on approach to remain relevant amid the keen competition. It is a pendulum of bad times and good times, and I heavily tilted toward the latter. We must always be resolute, as businesses will always experience the good and the bad times.

Thank you for your comments.  May the good Lord bless us all for this new work. Bye Bye!

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