- “Know where to find the information and how to use it. That’s the secret of success.” – Albert Einstein
(This is a continuation of a series first published in July and August 2014)
Hello Readers, welcome back to the last but one article to conclude this series. Having taken you through some historical developments of banking in Ghana, I am sure you realize that the banks have faced numerous challenges just like their counterparts in other parts of the world.
The chief regulator, Bank Of Ghana, as well as central government has found themselves mediating and intervening in the various bank runs, and crises that some financial institutions have gone through at one point in time. For example, as part of the ERP, the Economic Recovery Program, the state-owned banks were restructured under the FINSAP program and were recapitalized while their assets portfolio were cleaned up.
However did they ever learn from history? Sometimes various clean-ups of the books of some state banks have been followed up with new management teams who also end up repeating the same mistakes of their predessesors. Please read on…..
July 1991: The closure of the parent body of The Bank of Credit and Commerce
Any bank whose parent bank falls into crises is automatically affected. The Bank of Credit and Commerce International (BCCI) was a major international bank founded in 1972 by Agha Hasan Abedi, a Pakistani financier. It operated in 78 countries, had over 400 branches, and had assets in excess of US$20 billion, making it the 7th largest private bank in the world by assets. It was transformed by Pakistani ISI into “the biggest clandestine money network in history.” Also, BCCI defrauded depositors of $10 billion in the ’80s in what has been called the “largest bank fraud in world financial history” by former Manhattan District Attorney Robert Morgenthau.
BCCI’s criminality included fraud by BCCI and BCCI customers involving billions of dollars; money laundering in Europe, Africa, Asia, and the Americas; BCCI’s bribery of officials in most of those locations; support of terrorism, arms trafficking, and the sale of nuclear technologies; management of prostitution; the commission and facilitation of income tax evasion, smuggling, and illegal immigration; illicit purchases of banks and real estate; and a panoply of financial crimes limited only by the imagination of its officers and customers.
BCCI became the focus of a massive regulatory battle in 1991 and on July 5 of that year customs and bank regulators in seven countries raided and locked down records of its branch offices.
Investigators in the U.S. and the UK revealed that BCCI had been “set up deliberately to avoid centralized regulatory review, and operated extensively in bank secrecy jurisdictions. Its affairs were extraordinarily complex. Its officers were sophisticated international bankers whose apparent objective was to keep their affairs secret, to commit fraud on a massive scale, and to avoid detection.” Thus ended the journey of BCC in Ghana.
Pyram and Resource 5 – The Biggest Investment Fraud in Ghana.
In 1993, Pyram Business Consultancy and Resource 5 embarked on the operation of a savings and loans scheme without a license from BOG. They promised a 360 per cent annual interest on monies invested in a time when the Treasury bill was 29.05 percent per annum. These phony institutions managed to lure unsuspecting members of the public and top government officials to deposit billions of old cedis.
The BOG, after assessing the feasibility of their proposed businesses, however found their venture unsustainable and directed the two institutions to cease business in 1995. Can you imagine that even die-hard professionals including bankers patronized this scheme? It was alleged that many army officers who had arrived from peace-keeping assignments abroad were also badly hit. What a calamity! A few customers went into an early grave due to shock and stress.
A directive by the BOG to refund customers’ savings under the scheme proved unsuccessful and led to many Ghanaians losing monies up to billions of old cedis.
Bankruptcy of Meridien BIAO – SSNIT to the Rescue
The Social Security and National Insurance Trust bailed out Meridien BIAO, when it went bankrupt in 1995. Meridien was established by Greek-Cypriot Andrew Sardanis, now a Zambian citizen. It expanded its African network in 1991 after buying out the majority interests of Banque Nationale de Paris (BNP) in Banque Internationale pour l’Afrique de l’Ouest.
The Meridien BIAO had a network of banks in more than 20 African states. In Ghana, the bank encountered pressure from depositors following the Meridien BIAO’s problems with regulators elsewhere in Africa. The Ghanaian unit’s problems began even before the April 25 court decision in the Bahamas placed holding company Meridien International Bank Ltd (MIBL) in liquidation. This prompted depositors to withdraw money from branches in Niger, Gabon and Burundi.
“The Social Security and National Insurance Trust (SSNIT) which is an institutional shareholder came to the rescue of the bank in Ghana because of a growing trend of withdrawals. With SSNIT as the new majority shareholder, the bank later became known as The Trust Bank.
The 2000 Biggest Bank Scandal: Government Closes Down Two State Banks in January 2000
The Ghana government and BOG closed down the offices of Bank for Housing and Construction and Ghana Co-operative Bank, which were liquidated following heavy losses. On that fateful day, Government ordered all customers and staff except branch managers and accountants to stay away.
The financial community was shocked at the level which the authorities had gone to. Ghana Co-operative bank had been recapitalized several times and The Managing Directors had also been changed for an equal number of times. It had been sent out of the Clearing House on a few occasions by BOG.
However, history continued to repeat itself. On the day of the closure, there was an interesting phenomena around all the head offices and branches countrywide. Can you imagine that in the Head offices, the branch manager and accountants of the head office branches were the only ones allowed by the Police to enter the Bank premises? Even management personnel were not allowed in.
I was the branch manager of the Head Office branch and I remember vividly the crowd outside the bank, with Police Guards and Bank of Ghana waiting for me to drive into the office complex. The reason? Since the stock in trade of banks is cash, the BOG officials and Police security guards had to ensure that all cash kept in the bank vaults were checked and evacuated to the central bank for safekeeping to prevent any pilfering.
There was fear and panic among customers, who crowded around the offices of the two banks, down hearted. Some had huge investments and deposits in the banks. Some of them had grown so loyal to the bank that , despite the warning signs of run on the bank, the customer service of the bank made them attached.
To reduce the financial implication and loss of confidence in the banking sector, the government quickly approved a scheme to protect depositors of the two banks. Under this scheme the customers were required to submit their rights to claims to government and in exchange have their deposit balances transferred to Agricultural Development Bank or Ghana Commercial Bank Limited.
A notice to depositors dated 17th January 2000 posted at the national headquarters of the Co-operative Bank explained that the bank had been liquidated because of “consistent losses resulting from deterioration of their loan portfolio.” It said the liabilities of the bank exceed its asset and this had affected its ability to satisfy the capital adequacy and minimum capital required under the banking law.
The two banks had been weighed down heavily by the A-Life Supermarket scandal in which the owner fleeced several banks of some 120 billion cedis. Over 200,000 customers and a thousand workers of the two banks were affected. Although the depositors regained their funds, many businesses suffered due to the delays involved, and the need to re-open accounts in other banks. The bank staff lost their source of livelihood, culminating in several socio-economic challenges to them and their dependants, as well as the larger society. A few died out of poverty, stress and ill-health.
As I draw down the curtain of my story telling, remember that a stitch in time saves nine.
TO BE CONTINUED
ABOUT THE AUTHOR
Alberta Quarcoopome is a Fellow of the Institute of Bankers, and CEO of ALKAN Business Consult Ltd. She is the Author of Three books: “The 21st Century Bank Teller: A Strategic Partner” and “My Front Desk Experience: A Young Banker’s Story” and “The Modern Branch Manager’s Companion”. She uses her experience and practical case studies, training young bankers in operational risk management, sales, customer service, banking operations and fraud.