BoG defends revoking license of GN Savings and Loans

The Bank of Ghana (BoG) has inaugurated an advanced command centre, the latest in its cybersecurity infrastructure, established to ensure the delivery of a safer digital financial industry.

The Bank of Ghana has defended its decision to revoke the operating license of GN Savings and Loans, citing insolvency, severe liquidity crisis, and numerous regulatory violations by the troubled institution.

In a detailed statement, the central bank laid out the reasons that forced its hand in canceling GN’s license on August 16, 2019 along with 22 other distressed banks and non-bank financial firms.

According to BoG, GN Savings and Loans had a staggering negative capital adequacy ratio of -61% as of May 2019, far below the required 13% minimum. Its net worth was also in the negative at GH¢30.7 million, indicating an impaired capital position.

The institution had faced an acute liquidity crisis for months, with the central bank receiving numerous complaints from customers unable to access their deposits. GN had consistently failed to meet the 10% cash reserve ratio requirement since Q1 2019.

BoG stated that GN’s shareholders failed to recapitalize the firm despite long-standing promises of fresh capital injections from foreign investors. While GN claimed it was owed GH¢942 million by the government including interim payment certificates to contractors, BoG said only GH¢30 million in certificates were confirmed by the Finance Ministry.

A key reason cited for GN’s insolvency was the GH¢761.55 million it had extended as overdrafts and facilities to related parties like Ghana Growth Fund and Gold Coast Fund Management, in violation of prudential lending norms. The inability of these affiliated companies to repay crippled GN’s capital base.

“The failure of the two related parties to pay back these funds to GN affected its capital position, leading eventually to its insolvency and acute liquidity challenges,” BoG stated.

The central bank also highlighted other serious breaches by GN, including transferring over $62 million, £718,000 and €4,200 of depositors’ funds abroad to a related U.S. company without supporting documentation, in violation of forex regulations.

It accused GN of not maintaining proper accounts, failing to publish 2018 audited financials, and unilaterally closing 70 branches including its head office without BoG approval due to liquidity issues – all in breach of banking laws.

BoG asserted that GN was structurally using deposits to fund related companies, whose inability to repay led to the firm’s downfall with all related exposures labeled non-performing.

“GN’s insolvency problems are largely attributable to overdrafts and facilities extended to related parties under circumstances that violated prudential norms,” the regulator stated firmly.

The revocation followed GN’s reclassification from a universal bank to a savings and loans company in January after it failed to raise the GH¢400 million new minimum capital. However, its financial condition continued deteriorating post the move.

With GN deemed insolvent and in breach of multiple key regulations, BoG said revoking its license was the only option to protect depositors’ interests and maintain confidence in Ghana’s banking sector amid the ongoing clean-up exercise.

The case has brought into sharp focus the risks around related party lending, corporate governance failings, and regulatory oversight allowing such violations to persist for extended periods before enforcement action.

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