The Second Deputy Governor of the Bank of Ghana (BoG) Elsie Addo Awadzi has attributed the collapse of the seven banks in the country to a moral crisis charaterised by breakdown in values, unethical behaviour and disrespect for the sweat and hard work of others.
“While others describe the collapse of the banks as a banking crisis, I see it as a moral issue where the directors, shareholders and management of the bank neglected the sweat of their employees.
“A crisis charactersised by disrespect for employees who toiled day and night to meet targets set for them, a culture of borrowers not paying their debts, a culture of turning the other eye when the wrong things were being done because we are either too nice, too afraid, or stand to benefit from the wrongdoing, and a culture of building personal empires at the expense of others. These are the real issues that were at play,” Mrs. Awadzi added.
Poor Corporate Governance
Apart from the moral crisis, she also blamed the collapse of the banks on years of poor corporate governance, poor risk management practices and non-compliance to rules in the banking sector.
According to her, the turmoil was reflective of a creeping culture of disrespect for the rule of law, ethics, systems and culture of regulatory forbearance at the Bank of Ghana in the preceding years that encouraged such atrocious practices.
She said the decision by the Central Bank to merge the seven banks was a difficult one but BoG made the move in order to sanitize the banking sector and protect depositors’ money.
Speaking at the Ghana Bar Association Annual Conference in the Eastern Regional Capital of Koforidua, Mrs. Awadzi, who is also lawyer, disclosed that the BoG is taking steps to ensure that the heartbreaking situation does not repeat itself.
The BoG, on August 1, 2018, revoked the licences of five banks and merged them into an entity known as Consolidated Bank Limited.
The BoG claimed some of affected banks procured their operational licenses through dubious means.
The five banks are The Royal Bank, Beige Bank, Sovereign Bank Limited, Construction Bank and uniBank Ghana Limited.
Mrs. Awadzi stated prior to the revocation of the licences of the seven banks, officials of BoG had sleepless nights, as they pondered the complex situation they had on their hands.
She said her outfit had hoped that the shareholders and directors of the failed banks would find a way to reverse the situation.
“We had hoped that shareholders, directors and senior managers would find a way to address the severe problems that plagued their banks. But alas, we waited in vain, and there comes a time when one must, in good conscience, take such an action in the greater interest of the entire public,” she told her colleagues.
Touching on the regulatory decision of the Central Banks, she said that failed banks should not be allowed to remain in the financial sector since they would pose serious risk to the entire financial system and the country’s economy.
“No one wins when a bank fails, and there are usually no pretty outcomes. Depositors could lose their savings, including pensions and investment funds held by these banks, and creditors, including other financial institutions of the bank, could lose the funds they have lent to the bank. Jobs are lost, and the economic future of employees and their dependents suddenly becomes uncertain.”
“Shareholders’ equity is long eroded as a result of insolvency. Suppliers and other counterparties are impacted, as their sources of revenue dwindle, and affiliates suffer economic and reputational damage. The potential effects do not stop there. Other banks could suffer runs by their depositors, as a general sense of mistrust in the banking sector builds up.”
“As the regulatory authority, we are always mindful of these potential fallouts when we use our resolution powers. We, therefore, strive to implement them in a manner that mitigates the potential socio-economic impacts of the closure of banks. In taking these actions, we must balance the interests and rights of individual shareholders, creditors and employees, with the public interest objective of promoting and maintaining financial stability,” Mrs. Awadzi added.