Government must shed off part of the financial sector clean-up cost to surviving financial institutions especially banks, two industry analysts have opined.
Dr. John Kwakye, a Senior Economist at the Institute of Economic Affairs (IEA) and Dr. Richmond Akwasi Atuahene, a banking consultant believe that operations in the sector are intertwined and therefore the mess, if not handled early, could have collapsed the sector; hurting the economy and killing the banking industry.
Dr. Kwakye, speaking at the IEA’s review of the 2020 State of the Nation Address presented last week by President Akufo Addo noted that “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 won’t go anywhere, they are making super profit so tax some,” he said.
On the part of Dr. Atuahene, a move like that will be a laudable austerity measure to help relieve the pressure on government. He is asking for the special levy to exist for two to three years after which it should be scrapped.
“It’s a laudable idea. You operate within a system and the system nearly collapsed; you cannot be operating in isolation. Government must have a frank talk with the banks, come to a consensus and draw a clear roadmap on this. It must not be in perpetuity but just for two to three years,” Dr Atuahene told the B&FT.
Opposing the proposal
A strong case is being made by some of the banks against any such idea. This is because, already, banks are paying corporate taxes and the National Fiscal Stabilisation Levy (NFSL), which banks and others have been pushing for its abolishment for over five years now.
Many believe the above will remain an opinion of the financial expects since government has shown little goodwill to the banks on calls to scrap the NFSL.
The NFSL introduced in 2013, was among others to support the economy to put government’s fiscal plans at the time on the right footing in light of negative externalities. The levy is to be paid by financial institutions, insurance companies as well as companies providing mining support services.
Cost of Clean up
Finance Minister, Ken Ofori-Atta in an interview with Bloomberg last month has expressed optimism the cost of the ongoing cleaning the financial sector crisis will not go beyond the estimated GH¢16.8 billion.
Already, GH¢12.6 billion has been spent on depositors whose monies were or have been locked up following the revocation of the licenses of some nine local banks, 347 microfinance firms, 23 savings and loans companies as well as finance houses and 53 fund manager, leaving an outstanding GH¢4.2 billion. The outstanding debt will be largely used to take care of depositors in the savings and loans and microfinance sub-sectors.