Resources not available to undertake GH¢7bn non-banking sector clean-up - BoG
Governor of the Bank of Ghana (BoG) has disclosed that it would cost about GH¢7 billion to clean the non-banking sector.
Dr Ernest Addison said the budgetary resources are not there to undertake an operation of the magnitude of GH¢7 billion hence the need to start with the cleaning up of the microfinance sector which would cost about GH¢1 billion.
“As you know the total bill if you put both of them [Microfinance and Savings and Loans] together it’s closer to 7 billion. So the budgetary resources are not there to undertake an operation of the magnitude of 7 billion. We have just a billion and we can take care of the microfinance institutions.”
He added, “The ministry has managed to open an escrow account and the resources have been credited to the account. So we are in a better position to plan towards the cleaning up of the microfinance industry.”
Speaking at a press conference on Monday, Dr Addison said “…this is where we are, once we are very clear on exactly what to target or which portions of the other SDI’s might be necessary to deal with at this stage we would start the work on that. So just give us a little space and we will communicate that shortly.”
BoG urges caution
Dr Addison is, therefore, urging caution as the central bank embarks on the cleaning up of the microfinance sector.
“But we need to be careful about the process. So this what we are spending a little bit more time to understand the population of microfinance institutions out there. Secondly, we also need to make an assessment of whether our objectives would be fully met just by concentrating on the microfinance sector and leaving the other SDI’s as they are or trying to find the most vulnerable sections in the other SDI’s by that I mean the savings and loans and other finance houses.”
Savings and Loans sector
There are currently about 37 savings and loans companies and 22 finance houses, with almost a quarter of them in distress, a situation which analysts say requires a shake-up.
Only eight out of the 37 companies operating in the savings and loans sector have paid-up capital above the minimum amount of GH¢15 million.
It is expected that the central bank will seek to enforce the existing minimum threshold of GH¢15 million as part of the reforms of the sector to ensure that those that are not able to meet their capital requirements lose their licences.
This is because the quality of assets in the sub-sector has been troubled by the record high non-performing loans (NPLs).
The savings and loans and finance house sub-sector dominate the specialised deposit-taking institutions sector in Ghana, accounting for 42 per cent of the total asset size of the sub-sector.