Paying 100% depositors funds not economically wise – IEA

Research Director at the Institute of Economic Affairs (IEA), Dr. John Kwakye has described as economically unwise for government to pay 100 percent of the locked-up funds of depositors of savings and loans and microfinance institutions as promised by President Nana Akufo-Addo during the State of the Nation Address in Parliament last week.

According to him, paying the 100 percent, including those of DKM, which collapsed in 2015, after validation of their documents, will not only be very costly to the public purse but will immune customers of these institution of any risk that was associated with their investments.

For him, it would have been prudent for government to take on 70 percent of the cost and leave 30 percent for customers to bare as a means to lessen the burden on tax payers.

“I agree that government should pay them but I am arguing that maybe it should have paid them part and let them bear part of the risk,” Dr. Kwakye told the B&FT on the sidelines of an IEA event to access the 2020 State of the Nation Address.

He was, however, quick to add that, the decision might be politically upright but it has the tendency to hurt the fortunes of the economy, adding that as part of efforts to reduce the burden on the government, surviving banks should have been tasked to financially contribute to the financial sector cleanup.

“The financial system is interconnected. I make placings with you, I deal with you, they have interbank trading system; and I am saying that if something happens to one bank, why don’t you ask other banks to make some contribution. Secondly, banks are making abnormal profits together with telcos and mining companies.

We have a situation where we are not collecting enough revenue to do a lot of things in this country, and it is this revenue or borrowing that we have to undertake, to go and bail out customers; and I am saying that, the banks that are making super profits, why don’t you tax some of their profits…so we are taking about picking on booming sectors of the economy.

If you put additional tax on banks, some people are saying that it will be a disincentive for them to invest here; They are not going to go anywhere, they won’t go anywhere, they will be here, it is very profitable, these Nigerian banks that have invaded this place, they wont go anywhere, they are making super profit so tax some,” Dr. Kwakye said at the event.

Already, the finance ministry in a statement has announced that government has so far spent about GH¢17.7 billion on the clean-up of the financial services sector. According to the ministry, GH¢11.65 billion has been used to settle depositors in the banking sector and GH¢6.1 billion on the savings and loans companies and microfinance institutions.

According to a statement from the Finance Ministry: “we expect that the recent accelerated pace of the prosecutions and an intensification of the civil recovery process under the Receivership will result in substantial recovery of these monies for the treasury.”

The government, through the Ministry of Finance, on Monday, 24 February 2020, released GH¢5 billion to the Receiver of the defunct savings and loans and microfinance companies, as well as the official liquidator of the microcredit companies through Consolidated Bank Ghana (CBG). This was in a combination of cash and bonds to fully settle all validated claims due depositors of failed Specialised Deposit-Taking Institutions (SDIs).

This intervention, the ministry said, will provide liquidity and guarantee the funds of individuals, businesses, and financial institutions that have been locked up in these defunct financial institutions, pending the completion of the Receivership exercise, adding, with this intervention, all depositors will now be paid in full.

As at yesterday February 25, 2020, there were reports that the Receiver of the defunct financial institutions had so far credited GH¢200 million into accounts of 800 depositors of the Consolidated Bank Ghana (CBG).

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