The Bank of Ghana (BoG), says the revocation of the licences of seven indigenous banks within a year was done in the overall best interest of the Ghanaian economy to redirect and re-shape the sector to deliver on its mandate.
The Central Bank on Tuesday, August 1, revoked the licences of five indigenous banks including the Unibank Ghana, Construction Bank, Sovereign Bank, Royal Bank and Beige Bank to form the Consolidated Bank of Ghana.
Additionally, in August last year, the BoG also liquidated the UT Bank and Capital Bank for various financial infractions.
Dr Ernest Kwamina Addison, the Governor of the BoG, speaking at the 18th Annual Working Luncheon of the Ghana Association of Bankers in Accra on Friday, said although it was an unpleasant and difficult decision, it was aimed at ensuring financial stability in the banking industry.
The move, he said, followed series of financial infractions including licensing acquisition, inadequate capital, high levels of liquidity and credit management controls and weak corporate governance structures.
To support government’s objective of financial stability and strengthen indigenous banks, Dr Addison said the government had recapitalised the newly formed banks to take the assets and liabilities of the defunct banks.
The government had also issued a bond of GH¢5.76 billion to cover the gap of the liabilities and good assets of the consolidated banks, he added.
The Governor said the Central Bank’s mandate was to promote sound economic management and stability of the financial system and would, therefore, continue to strengthen the regulatory mechanisms in the sector to propel economic growth.
“The decision was taken to provide safety-net for vulnerable depositors’ funds and imbue confidence in the banking industry,” he added.
Dr Addison said government, through the Central Bank, would only extend financial support to local banks that were solvent, well governed and managed, and in full compliance of the Central Bank’s regulatory requirements.as well as able to demonstrate that they had accessed private-sector solutions for re-capitalisation.
The Governor underlined the need for indigenous banks facing financial difficulty to meet the Central Bank’s minimum capital requirement of GH¢400 million to merge, in order to raise the required amount to avoid suffering the fate of the liquidated banks.
Dr Addison said the current financial challenge facing the banking industry was surmountable, noting that, there were some indigenous banks that were performing very well and encouraged the public to be confident in depositing their funds with them.
He noted that the Central Bank had been focusing attention on two issues including; implementing sound policies to stabilise the macro-economy and price stability as well as financial stability.
Dr Addison said: “We have seen significant improvements in the macro-economy, and we’ve seen the rate of inflation and that the country is on the path to full recovery, given the data we have seen over the first quarter of this year”.
However, he said, the country had witnessed some volatility in the currency market across most of the emerging markets and frontier economies including Ghana, which had been largely attributed to the normalisation of the United States Monetary Policy, resulting in rising US dollar assets leading to tight global financing conditions, reverse capital flows and exchange rate reversions.
Despite those external developments, Dr Addison said the Cedi had gradually stabilised against the US dollar, saying, “We need to remain vigilant as the external environment remains porous”.
He noted that those improvements in the macroeconomic indicators would result in the reduction of the lending rate, which would support private sector credit allocations and propel the economy to the desired growth.
Dr Addison, therefore, underlined the need for the country to pursue robust policies aimed at ensuring economic stability and growth.
At the end of June 2018, he said, the total asset of the banking industry stood at GH¢103 billion, growing by 15.7 per cent over corresponding period last year.
He said although the financial soundness of the banking sector had improved, the financial quality remained a concern transmitting into capital deficiency and some profitability pressures on banks.
Dr Addison believed the implementation of the national property and addressing system would go a long way to reduce loan default.
Mr Frank Adu Junior, the Vice President of the Ghana Association of Bankers, in an earlier remark, said the association fully supported the Central Bank’s resolve to address the shortfalls in the banking industry.
However, he said, if caution was not exercised, it would adversely affect the image of the banking sector and confidence of depositors, which would lead to panic withdrawals.