Bailout of local banks long overdue – Prof.Gatsi

An economist and a financial analyst, Prof. John Gatsi has questioned the timing of government’s GH₵2bn bailout to six local banks, aimed at supporting these banks meet the Bank of Ghana (BoG) GH₵400m minimum capital requirement.

“This approach to protect local banks was the prudent approach proposed to government and Bank of Ghana since 2017 but both government and BoG refused” he said on accra based radio gold.

According to him, the refusal deepened the difficulties of these banks over the period. The greatest challenge created by the approach used by the BoG and government is low confidence leading to unending panic withdrawals.

“Most of these banks are now in liquidity and confidence trap. It is unfortunate these banks and their workers have to suffer the worse form  of psychological trauma before  this bailout which was suggested long ago  as a solid  alternative.

Those who follow the developments in the financial sector will not question the principles of transparency, disclosures and skewed benefits about the bailout”.

Furthermore, he maintained that it was surprising that Agricultural Development Bank which announced that, the bank has now met the new minimum capital requirement is also receiving the said bailout to capitalize.

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For him, he reckons something must be wrong as BoG and Ministry of Finance are to be part of the board and shareholders who met to arrange for the recapitalization.

Some of the local banks with BoG and government of Ghana shareholding in excess of 90% should have met the new minimum capital by offloading about 39% to private sector long ago to capitalize. A call by BoG to recapitalize is actually a call on shareholders to capitalize their banks.

It also means a call on BoG and government of Ghana to recapitalize banks in which they own shares. The question is why have BoG and government not complied with their own directive to capitalize? he asked.

He also indicated that government needs to review the approach to single treasury account policy which has moved funds of some state institutions from local banks.

The review to reverse a certain proportion of such funds back to the local banks will contribute to activating liquidity trust and restoration of confidence among local banks. Prompt payments of arrears especially to government contractors both past and current can revive liquidity and credit in the banking system.

A government bailout to local banks  is not free money, therefore should necessarily and indeed be accompanied by management and board restructuring. However, the government should also indicate to workers of the recipient local banks whether or not this bailout will be followed by retrenchment and other labor rationalization measures, he noted.

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Nonetheless, he urged government to work assiduously to close the chapter on the financial sector to free the sector to effectively regain its role in real sector activities.

 

Background

The government is expected to announce a GH₵2billion bailout package for some six indigenous banks to enable them to meet the Bank of Ghana(BoG) deadline on recapitalization, which expires today, December 31,2018.

The package was hurriedly put together this month for the six banks, which in spite of exhibiting good corporate governance are unable to meet the GH₵400m new minimum capital, B&FT has learnt.

Sources also indicate that a Special Purpose Vehicle that has already been set up, will execute the deal.

It will mobilise funds through the issuance of a bond that will be sold to both domestic and foreign investors.

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I AGREE WITH THE PROFESSOR INSOFAR IT CONCERNS THE QUESTIO.N WHETHER SUCH A BAILOUT SHOULD HAVE BEEN DONE EARLIER. IF YOU INTEND SUCH A BAILOUT, IT SHOULD HAVE BEEN DONE EARLIER AFTER A THOROUGH INVESTIGATION WHICH BANKS MIGHT NEED ASSISTANCE. BUT FOR ME THE MAIN QUESTION IS WHETHER SUCH A BAILOUT IS NECESSARY OR ADVISABLE AT ALL. FOR ME, THE BANKS HAD TIME ENOUGH TO PREPARE FOR THE RECAPITLISATION, AND TO PLAN WHICH STRATEGY RO USE TO ACCOMPLISH THE DESIRED TARGET. IF THE BANKS DIDN’T SUCCEED UNTIL THE GIVEN DEADLINE, IT IS AN INDICATION THAT THE MANAGEMENT OF THESE BANKS… Read more »