Terkper proposes tier banking approach …says gap between universal and S&L too wide

Former Finance Minister Seth Terkper is advocating the introduction of a tier-banking approach especially for the indigenous banks – a strategy whereby specialised banks will be allowed to operate based on their solvency, with a lower minimum capital requirement.

According to him, the gap between universal banks and savings and loans is too wide and the creation of niche banks, with some operating possibly as regional banks, will be the way to go.

Speaking to selected journalists in Accra on the banking crisis and the way forward, he said: “This concern – that we seem to be taking indigenous investors out because they are the least able to afford GH₵400m – can be resolved through another tier between savings and loans and universal banks because the minimum capital requirement for savings and loans is GH₵15- GH₵20m. Maybe the big savings and loans companies are operating with GH₵50m-GH₵100m, but even then the gap between GH₵100m to GH₵400m is big: and therefore could we have another tier where niche banks could be operating – of course, there could be regional banks; and that also helps growth so that the GH₵400m does not become a barrier to entry and the economy”.

He also urged the central bank to be more solution-oriented with regard to long-term economic prospects.  “We could spend all our time fact-finding; the next crisis is already being predicted.”

Furthermore, he indicated that as the economy matures and grows it becomes more complex, which calls for clarity of laws and regulations in banking.

The banking sector reforms undertaken by the Bank of Ghana affected nine banks, which had their licences withdrawn; seven out of the nine were merged into the Consolidated Bank, Ghana, while two were taken over by GCB.

The reforms have also seen the announcement of a raft of directives – key among them being the increment in minimum capital requirement from GH¢120million to GH¢400million, which came into effect on December 31, 2018.

For him, some banks in the country would have collapsed much earlier had the National Democratic Congress (NDC) government not introduced policies to protect the financial sector.

He explained that the Energy Sector Levy that formed part of the restructuring of debts to banks, while he was Finance Minister, helped stabilise some financial institutions in the country.

ESLA and the refinancing of VRA’s legacy debt was a pragmatic way of preventing the impact of the energy and road sector debts from contagiously affecting depositors’ funds, jobs and instigating a meltdown of the Ghanaian economy.

Many are accusing the previous government of superintending over the rot that eventually led to collapse of the banks, especially as all major reports on the state of the collapsed banks indicated that their challenges predated the current government.

“The dichotomy that is being portrayed as though one administration used a ‘big-bang’ as a solution and just made banks to go down is not the total picture. The total picture is that some have taken it to what criteria was used to support some banks and what criteria was used to let other banks go down, so there is not a single criteria and in the same way we would not have had similar criteria – otherwise going into an election year, with DKM a lot would have been done to save it.”

But while Mr. Terkper admits to the previous government’s failure to sanction banks and officials whose actions bordered on criminality, he insisted that their efforts helped some of the banks to perform creditably.

On some of the measures for the long-term, he stated that the current Deposit Insurance law that was instituted during his time, when implemented, can help depositors who were critically affected by the crisis.

Similarly, a banking resolution guideline when developed will have defined clear roles and segregate the various functions of banks to forestall recurrence, he argued.

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