The use of pension funds to rescue some five local banks unable to meet the Bank of Ghana’s GH¢400million minimum capital is a very risky move and a radical departure from how pension funds have been managed in Ghana to date, Bright Simons – Vice-President of IMANI Ghana, has said.
Commenting on the announcement of a Special Purpose Vehicle (SPV) – the Ghana Amalgamated Trust (GAT) – to support solvent and well-run indigenous banks, Mr. Simons stated that pension funds would have to divest a significant portion of their current investment in their main asset categories in order to invest in the GAT bond, trusting the government of Ghana to constitute the entity properly with truly independent and competent directors and managers.
“At any rate, the investment regulations also bar pension schemes from assuming ownership of companies in which they invest (it is unlikely, then, that the law would permit collusive ownership by a group of pension funds), so full trust in Government’s best intentions is critical,” he said.
According to a release by the Finance Ministry, GAT has committed funds from pension funds and other investors, through a bond programme, with proceeds of up to GH¢2billion to be used for equity investment in the eligible banks as determined by the investors. The bonds issued to Pension Funds will be listed on the Ghana Fixed Income Market (GFIM) for liquidity purposes.
But Bright Simons questioned the move, on the basis that the pensions law does not allow pension fund managers to invest more than 5 percent of their funds in ‘collective investment schemes’.
And strictly analysed, the Ghana Amalgamated Trust (GAT) concept is indeed a collective investment scheme in the meaning intended clearly under the Ghanaian securities law.
“If this conservative posture were to be adopted, the pensions industry would be barred from investing more than US$100million in the banks through direct participation in the GAT,” he stated.
The GAT programme
According to the Bank of Ghana, beneficiaries of the GAT programme include ADB, National Investment Bank, OmniBank Ghana Limited / Bank Sahel Sahara Ghana, Universal Merchant Bank and Prudential Bank.
A statement issued by the Finance Ministry said in addition to providing capital for these banks, GAT also seeks to provide business development support in order to facilitate their strengthening – from a perspective of both corporate governance and growth.
“Government has worked with GAT to invest in NIB and ADB, which have faced significant challenges, to ensure their transformation. The plan is to strengthen both ADB and NIB and reform their operations to support government’s efforts in promoting industrialisation and agribusiness, especially for small- and medium-scale enterprises.
“ADB and NIB will also benefit in 2019 from wholesale funds under the new National Development Bank initiative,” the statement said.
According to the Finance Ministry, the National Pensions Regulatory Authority, Securities and Exchange Commission and BoG have been consulted to ensure that GAT is working to support the aforementioned banks.