Notable collapse in the financial sector in 2019

The financial sector experienced a shakeup few months into the year when the Central Bank, Bank of Ghana, revoked the licenses of over 300 microfinance companies and microcredit or money lending companies on Friday, May 31, 2019.

According to the BoG, 192 of the microfinance companies were insolvent with another 155 ceasing operation even before the action of the regulator.

The revocation, according to the BoG was in pursuant to section 123 (1) of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930), which requires the Central Bank to revoke the license of a bank or Specialised Deposit-taking Institution (SDI) where the Bank of Ghana determines that the institution is insolvent or is likely to become insolvent within the next 60 days.

The sector thought all was well until the Bank of Ghana struck again following an earlier collapse of 23 insolvent savings and loans companies and finance house companies.

This move, according to the central bank, was to restore confidence in the banking and specialised deposit-taking sectors.

The Executive Secretary of the Ghana Association of Savings and Loans Companies (GHASALC), Tweneboah Kodua Boakye, revealed the association expected the collapse of the twenty-three (23) Microfinance Institutions.

He explained that there were a number of institutions that were suffering as a result of uncertainties in the financial market hence the action by the Central bank.

Despite his explanation, some affected institutions came as a surprise to many as they were supposedly thriving in the economic sector.

Below were some of the notable microfinance establishments which joined the unfortunate bandwagon:

GN Savings and Loans Company

Originally incorporated as First National Savings and Loans (FNSL) Company Limited, the company was licensed as a Savings and Loans Company on May 8, 2006.

It was owned by businessman and politician Dr Papa Kwesi Nduom.

The woes of the company started when GN begun facing some insolvency problems largely attributable to overdraft and other facilities it extended to its related parties who are other companies in the Groupe Ndoum network of businesses, under circumstances that violated relevant prudential norms.

Midland Savings and Loans

The Bank of Ghana revealed the Savings and Loans registered persistent operational losses which made operations difficult.

This culminated in an adjusted negative capital adequacy ratio (CAR) and negative net worth for the company as of August 31, 2018.

Recording a net worth of negative GH¢148.92 million as of end May 2019, further revelations by BoG indicated that its paid-up capital is impaired in violation of Section 28(1) Act 930.

The company soon suffered severe liquidity challenges, which made it unable to provide adequate funds to run the various branches, thus rendering the branches inactive.

Midland Savings and Loans Company Ltd. was licensed by the BoG to operate as a Savings and Loans Company on October 21, 1996. It commenced full operations on March 13, 1997.

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Furthermore, the company was faced with severe liquidity challenges, which made it unable to provide adequate funds to run the various branches, thus rendering the branches inactive.

Ideal Finance and Dream Finance Company

Ideal Finance was faced with severe insolvency and liquidity challenges over the past two years. The Institution faced a significant capital shortfall with a Capital Adequacy Ratio (CAR) of negative 33% in breach of the minimum required of 13% with a corresponding capital deficit of negative GH¢188,257,625.35

According to the Bank of Ghana, the revocation of the licenses was necessary since their shareholders have been unable to recapitalise them from insolvency over a reasonable period of time.

uniCredit Savings and Loans

The institution’s inability to access its funds from its sister company, uniSecurities, even though overdue, resulted in severe liquidity challenges and its inability to meet withdrawal requests of customers. uniCredit Savings & Loans Ltd. was found to be insolvent with a negative capital adequacy ratio and negative net worth following the Bank of Ghana’s assessment as of December 2018.

uniCredit Ghana Limited (uniCredit), formerly Kantamanto Savings and Loans Company Limited, was given an operating license in October 1995 and commenced operations on 1st November 1995.

Women’s World Banking Savings and Company Limited

The company was one that showed consistency in its growth until the revocation of its license.