Banks are strong enough to absorb new 5% levy -– ADB MD

Agricultural Development: ADB will continue to improve
Dr. John Kofi Mensah, MD, ADB

Managing Director of the Agricultural Development Bank, Dr. John Kofi Mensah, has said that reforms introduced by the regulator in the past few years have strengthened the banking sector; hence, the industry can absorb the 5 percent levy recently introduced by government.

Government has said it spent some GH¢21billion on the financial sector clean-up exercise, yet available data show it has not been able to recover even 10 percent of that money. Hence, the 2021 budget recently introduced a new 5 percent financial sector clean-up levy with the aim of using it to help defray outstanding commitments in the sector. This levy is projected to run until 2024 and be reviewed thereafter.

This, Dr. Kofi Mensah admits, may not be convenient for banks in the short-term, as it will increase their costs – but it will not significantly impact their operations as the industry is now well-capitalised and much stronger to support growth of the economy.

“In the short run, this will amount to cost for the banks; but in the medium- to long-term, it will be beneficial for economic development. Don’t forget that when it came to strengthening the banks, government had to recapitalise some of them – and this has strengthened banks to deliver good services and promote economic development.

“The banks are now stronger than they used to be, so shedding 5 percent before tax is not something that will bring us down but will be a major contribution to economic development,” he said at the post-budget analysis of the Institute of Social, Statistics and Economic Research (ISSER) at the University of Ghana.

Also commenting on the same subject, Director of ISSER – Prof. Peter Quartey, also said he feels the 5 percent tax on pre-tax of banks will not affect their books, given their strength after the reforms – which is reflected in their published financial statements.

“I don’t think the 5 percent is too high. We see banks posting high profits at the end of every quarter; and besides, they are well-capitalised so 5 percent on their profits won’t be so huge.

“When government is able to raise enough taxes, it will be in a better position to grow the economy. And when the economy grows, the banks benefit. When things are not moving well, the banks suffer. So, the argument should be expanded beyond just paying taxes and also look at the ripple-effect on businesses,” he said.

The professor, however, added that the newly-introduced tax could also lead to an increase in certain bank charges, as banks will seek to pass some of the cost on to customers.

“As a business, when you are slapped with any cost you look at your client base and see whether you can pass it on to them, or absorb it. And it is very likely some part of the levy will be passed on to customers. Charges on some of the services we enjoy might see some increase, and customers will have to bear that cost,” he said.

Meanwhile, the umbrella-body for the industry, the Ghana Association of Bankers, has called for scrapping the newly introduced taxes – saying they are counter-productive and will make the sector unattractive to investors.

Leave a Reply