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Business News Thu, 11 Jun 2015

Banks are too comfortable with T-bills – Veep

Ghana’s Vice President, Paa Kwesi Bekoe Amissah-Arthur has chided banks for being too comfortable with fixed income securities and just turning in huge profits for shareholders without stretching the limits of banking in the country.

Mr. Amissah-Arthur, who served as the Governor of the Bank of Ghana for three years, has thus called on banks to reduce their investments in all government securities, which currently pay on average 25percent interest, and instead expand the savings base of Ghanaians, lend more to individuals and small and medium enterprises.

Speaking at the opening ceremony of the 2015 B&FT-organised Ghana Economic Forum (GEF), Mr. Amissah-Arthur called for the extensive development of the capital market in Ghana to help bridge the financing gap of infrastructure in the country.

“We need to mobilise savings from small households. Banks are too comfortable with fixed income and money market instruments. You don’t lend and mobilise enough but return huge profits. Go beyond that, mobilise enough to help develop the infrastructure in this country,” he said.

The comments come just a week after Dr. Kofi Amoah- and entrepreneur who has a significant stake in a banking firm- called for a law to regulate banks dealings in the government’s securities market.

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Data available indicates that just about 30percent of Ghanaians have bank accounts, leaving about 70percent of the population literally without bank accounts. Banks in 2014 invested GH¢12billion in government’s bills and other securities, which represented more thana third of deposits raised, which stood at GH¢32billion.

Loans and advances to customers reached GH¢22.2billion in 2014 from GH¢15.43billion in 2013, but most of these loans, according to disgruntled trade associations and industry unions, go to big businesses and multinationals, thereby, leaving small and medium enterprises at the mercy of non-bank financial institutions, which on average charge more than 70 per cent on loans.

But the appetite to lend less to individuals and businesses and invest more in government securities due to high returns and no risks has soared over the past half decade and expected to increase further, with the MD of Cal Bank, Frank Adu Jnr. saying last week that his bank will increase its investment in Treasury Bills and cut lending to businesses.

Mr. Amissah-Arthur lauded the efforts of the GEF in developing the consensus both the private and public sector seek. This year’s GEF is the beginning of a five year agenda in accessing the creation of a Ghanaian owned economy.

“GEF continues to consolidate and refine the programmes and policies that will contribute to Ghana’s economic progress. I encourage the sponsors to persevere in this effort. The theme is quite appropriate considering the restoration of macroeconomic stability and the sustainability of growth in the country,” he said.

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He added that government’s main policy stance is to increase local participation in all sectors of the economy including power.

Touching on the success of the local content policy agenda pioneered in the petroleum sector, he said government will ensure that local businesses participate in power generation and construction works which will help minimise capital flight.

“Local content policy is working well in petroleum sector and receiving support from the big players and we want to extend this to other areas because it leads to cheaper and more efficient utilisation of domestic resources. Foreign investors must see this as a rational choice.”

The Vice President added that government is looking at reducing its investment in infrastructural development and therefore called on the help of the private sector, in Public Private Partnerships (PPPs), in the provision of infrastructure.

But his worry is the mindset that public infrastructure provision is the sole duty of government and no one else. He therefore called for the modification of that mindset and look at private sector’s involvement in the provision of critical infrastructure.

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“Looking at government’s expenditure on debt financing, we cannot rely on budget allocation to close the infrastructure deficit. We require US$1.5billion dollars annually to fix the infrastructure deficit. We therefore call on more PPPs to reduce the funding gap, deliver efficient public infrastructure to deliver the growth we all seek.

“We over rely on borrowing from external sources to build infrastructure meanwhile we can get that done with our pension funds, insurance and banking institutions. What more can the government do to encourage you (financial people) to develop the instruments to increase long term savings?” he asked.

Chief Executive Officer of the Business and Financial Times (B&FT), Edith Darkwa noted that donor driven development has not delivered the desired results and that the country must change its course if different outcomes are expected.

“We want an economy in which Ghanaian owns by and large majority or significant portions of the most productive sectors including the pushing of innovative ideas for development.

“We want an economy in which we make most of what we consume and export the rest. An economy where Ghanaian owns the development process and originators of policy and participate effectively in the decision making process,” she said.

She noted that despite Ghana and Africa gaining political freedom decades ago, the continent still doesn’t have its economic freedom and “now is the time to gain our economic freedom so that our people and children will shout, free at last.”

Source: B&FT