ADB, NIB reset would’ve been too costly in the short-term – Akligoh

ADB, NIB reset would've been too costly in the short-term - Akligoh
[L-R] Mr. Sampson Akligoh; Mr. Mark Badu-Aboagye; Dr. Lordina Amoah; Dr. Joshua Abor and Dr. Ed Brown

…says reform plans remain on the table

Head of the Financial Service Division at the Ministry of Finance, Sampson Akligoh has stated that a reset of erstwhile development financial institutions – Agricultural Development Bank (ADB) and National Investment Bank (NIB) – would’ve been ‘too costly’ -financially and socially – in the short-to-medium term.

This, coupled with systemic flaws from the previous model operation, he said, informed the decision for the new National Development Bank (NDB), with changes in the architecture baked into the legislative framework.

The status of both banks – formed to serve as development institutions – has been called into question, following their foray into universal banking, ostensibly as a result of weak financial performance. This was most recently highlighted during a validation session of a four-country study on the developmental activities and impact of NDBs conducted by the Private Sector Development division of the African Center for Economic Transformation (ACET).

The study, which examined NDBs in Ghana, La Côte d’Ivoire, Rwanda and Tunisia deemed both institutions not fit for purpose, owing to their negligible developmental projects, despite recent impressive financial performances, particularly of ADB. “Considering the contemporary structure of a development bank, it has been established that both ADB and NIB do not fit as National Development Banks,” the portion from the preliminary findings read.

Speaking as part of a panel at the validation workshop which had as its theme: The Political Economy of National Development Banks in Ghana – ADB, and NIB in Perspective, Mr. Akligoh affirmed the current status of both institutions, as described in the study and argued that the high social cost would have made a restructuring imprudent in the short-term.

“As we speak today, these institutions are not development banks, not only in terms of what they do but in terms of how they are licensed, registered, and their corporate strategy. Clearly, the whole conceptualisation of a DFI is lost on ADB and NIB, and we realised that we cannot even leverage it to create a new ecosystem.

The question is, can you reform them? The analysis that was done was very clear; it would be very costly. If it were only financial, it would’ve been easier to do but the social cost, especially legacy issues, of those reforms were going to be enormous.”

Adding that a corporate governance culture has developed, owing to the boards being appointed by the state, which would also have come at too high a cost to reset.

He, however, stated that measures such as the injection of capital into both institutions through the Ghana Amalgamated Trust (GAT) were consistent with the Finance Minister, Ken Ofori-Atta’s intention of reforming them. “The minister has made it clear that in his mind, we need to bring them back. We started the process by putting them under GAT and taking it from there,” he added.

Private sector focus

With the direct lending by ADB and NIB to the state and businesses often cited for their previous woes, Mr. Akligoh stated that the wholesale approach of the impending NDB would ensure that it leverages the expertise of private institutions which have acquired competence in dealing with businesses, particularly Small and Medium-sized Enterprises (SMEs).

“The architecture is entirely different from the ADB and NIB model; the new development bank will not, under any circumstances, lend directly to the SMEs. Therefore, our SME credit institutions, the existing ones, then become very important. ‘Which banks can be positioned to be SME institutions?’

Perhaps, we should be asking how to rope in our rural banks, venture capital institutions, how we can rope in private capital institutions, seeing that the strict focus will be on the private sector and not government projects,” he explained.

Whilst conceding that the cost of credit from the DB will hinge upon its cost of funds, he was optimistic that it would be ‘competitive’ and ‘consistent’ with rates from similar DFIs.

For one-time Dean of the University of Ghana Business School (UGBS), and financial economist, Prof. Joshua Yindenaba Abor, who served as the lead consultant on the project, ADB and NIB should be retooled to serve as retail development banks under the Development Finance Institutions Act, 2020.

He further called for stringent measures to be put in place to ensure that the private sector partners of the Development Bank are not presented with a conflict of interest regarding which source of credit to extend to businesses.

Other panelists, including CEO Ghana National Chamber of Commerce and Industry, Mark Badu-Aboagye; Finance Lecturer at UGBS, Dr. Lordina Amoah as well as Senior Director, Research, Policy and Programmes at ACET, Dr. Ed Brown, who served as the moderator for the session, agreed that the success of the imminent NDB hinges on a clear definition of parameters, an independent governance structure, and transparency.

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