Bawumia predicted collapse of UT, Capital Banks and 6 others

The Vice-President of the Republic of Ghana, Dr. Mahamudu Bawumia, will forever remain in the minds of many Ghanaians who regard him as an astute economist, especially as several of his predictions have come to pass.

On Monday, the Bank of Ghana announced the complete takeover of UT Bank Limited and Capital Bank Limited by the GCB Bank Limited after revoking the licences of the two commercial banks.

The central bank attributed its actions to the severe impairment of the capital of the two banks.

But the warning signs were long written on the walls by then Vice-Presidential candidate of the NPP, Dr. Bawumia.

In one of his lectures dubbed: ‘State of the Ghanaian Economy: A Foundation of Concrete or Straw?” in the heat to the 2016 general elections, Dr. Bawumia predicted that quite a number of commercial banks were on the verge of collapsing due to fragility in the Ghanaian economy.

He went further to state that significant rise in bad loans has had a rippling effect on the banking sector and that if the banks were asked to provide fully for all bad loans captured in the books, quite a number of them would not survive.

Although he did not mention names, he said “Eight banks were identified to exhibit significant weaknesses, with capital adequacy ratios below 10% (Some below 5%) and nearing collapse.

Below is the view of Dr. Bawumia, then Vice-Presidential candidate of the NPP as captured in his “State of the Ghanaian Economy: A Foundation of Concrete or Straw?” which was delivered at the National Theatre on Monday, September 12, 2016.

“BANKING SECTOR FRAGILITY

Mr. Chairman, as Ghana’s economy has declined under John Mahama’s NDC government, so has the financial sector become increasingly fragile and vulnerable. Specifically:

Bad loans in the banking sector have risen significantly. Economic and Financial data from the Central Bank, show that non-performing loans have risen sharply from 11.2% in May 2015 to a critically high 19.3% in May 2016. For example, the level of impaired loans in one of the largest Commercial banks, have quadrupled and the situation is becoming widespread in the banking sector. Available information shows that due to non-payment of these loans, the banks have declared GH¢2.4 billion of the outstanding stock of loans as a complete loss and are making 27 provisions against profits. Certainly, these are resources that could be channeled to create more industries in our communities.

The Asset Quality Review of Banks conducted in 2015 shows significant vulnerability of banks to current economic conditions, and that if the affected banks were to provision fully for all bad loans, a significant number of them would collapse. Eight (8) banks were identified to exhibit significant weaknesses, with capital adequacy ratios below 10% (some below 5%) and nearing collapse.”