Banks threatened with direct debit by BoG

Several commercial banks in Ghana are being threatened with the spectre of having their accounts with the Bank of Ghana directly debited over monies they owe to the former Export Development and Agricultural Investment Fund [EDAIF] which has been absorbed into the recently established Ghana EXIM Bank.

It is not known publicly how many banks are involved but if the banks fail to pay up their debts voluntarily, they are most likely to have their accounts with the central bank debited directly and the monies involved given to EXIM Bank.

The debts arose during the last years of EDAIF, before it was merged with Eximguaranty Company and the Export Finance Company to create EXIM Bank in 2016 by government.

As part of its effort to provide low cost financing to private enterprises engaged in production for export, EDAIF provided funds to several commercial banks at 2% per annum for on-lending to needy private enterprises.

The banks were allowed to on-lend to their eligible customers at 10% per annum – thus giving the banks a 10% interest spread – but on the agreement that the banks would incur the credit risk. This meant that no matter the outcome of the financing, the banks were obliged to pay the monies back to EDAIF.

However a large proportion of the on-lent monies have not been paid back by the banks who claim they have been unable to recover the loans from their borrowing customers. Indeed, in some cases, the banks say they cannot even identify the ultimate borrowers.

Since EXIM Bank was established with the business of the former EDAIF forming one of its three divisions, efforts to recover the on-lent funds from the banks have proved largely fruitless. Consequently, EXIM Bank has taken the issue to the BoG which is a shareholder in EXIM Bank, but pressure from the central bank has also failed to recover the un-repaid monies.

EDAIF’s loan portfolio inherited by EXIM Bank is worth some US$200 million and GHc170 million in unrecovered on-lent funds are now at stake from the current situation.

As a last resort the BoG is now threatening to debit the accounts of the affected banks directly if they fail to recover the on-lent monies shortly. This is correct practice since the banks themselves had agreed to take on the credit risk in exchange for a wide interest margin.

Goldstreet Business learnt that the affected banks are now belatedly scrambling to recover the loans they gave from their customers. If they fail and their accounts with the BoG are directly debited, their ongoing poor asset quality problems would worsen further. Currently the non performing loans ratio of Ghana’s banking industry is at a long term high of 23%.

EXIM Bank itself desperately needs the monies to enable it carry out its mandate. So far the state owned institution has built up a loan portfolio of some GHc417 million, primarily in financing of enterprises engaged in the one district one factory initiative and financing of pharmaceutical companies to enable them meet the Good Manufacturing Practices standards of the World Health Organization with a view to substantially increasing both their 30% market share in Ghana’s domestic market and increase its share of the West African market.

However the bank has severe financing constraints. Under the enabling law with which it was established it receives 0.75% of the CIF value of all non-oil imports into Ghana, currently amounting to about GHc16 million a month but it is required to pay 10% of this to the Ghana Export Promotion Authority leaving it with just about GHc14 million. However it has succeeded in raising significant funding from several counterpart institutions such as US$200 million from Afexim, the continental Eximbank; US$150 million from Gelt Swiss; a US$300 million line of credit from United States Exim Bank; and further financial support from USAID and India’s Exim Bank.