Korsi Dzokoto is the author
Introduction
The Ghana Amalgamated Trust (GAT) was originally established to provide financial support to struggling local banks and help them meet the new capital requirements set by the Bank of Ghana. However, over time, concerns have emerged regarding GAT's true purpose. Instead of serving solely as a lifeline for these banks, GAT’s financial mechanisms have seemingly been manipulated to enable government actors to gain strategic control over local institutions. High interest rates, restrictive access to funds, and mismanagement have deepened financial challenges, leading to adverse consequences for the indigenous banking sector.
Government actors have leveraged GAT’s financial structure to exert influence and potentially gain majority control over local banks. The terms imposed by GAT —particularly the high interest rates and management fees — have undermined the original mission of support and led to further destabilization of the sector.
GAT’s Shift from Support Mechanism to Investment Tool
Initially, GAT was designed as a support mechanism to inject much-needed capital into local banks. However, the financial terms under which these banks received the funds have raised questions about the true intent behind GAT’s operations. Specifically, GAT provided funds at a prohibitive annual interest rate of 22%. For banks already struggling to meet the revised capital requirements, this high-interest rate was anything but a lifeline.
Instead of using the funds for productive lending, these banks were forced to divert their limited resources into government securities, which appeared safer in a volatile environment. The additional 1% annual management fee imposed by GAT further eroded their already thin margins, exacerbating their financial woes. Rather than facilitating recovery, these conditions created a financial burden, reducing profitability and limiting the banks' ability to grow and extend credit to businesses and individuals.
The Debt Exchange Program and Its Impact
The government's Debt Exchange Programme (DDEP) compounded the challenges faced by these banks. Many local banks, desperate to preserve capital, invested heavily in government securities as a means of safeguarding their financial stability. However, the DDEP devalued these securities, leading to significant financial losses. Bonds that were once considered safe, became toxic assets and banks that had relied on them for stability saw their balance sheets deteriorate rapidly.
GAT's funds, instead of rescuing these institutions, tied them to an unsustainable cycle of debt. The combined impact of high-interest loans and the DDEP, left many banks on the brink of collapse, contributing to a worsening financial environment. GAT’s role in this process has led to suspicions that the financial strain placed on these banks was intentional, providing government ACTORS with the opportunity to step in and acquire majority shares.
GAT’s Role in Facilitating Government Control
There is growing belief that GAT was never intended merely as a support mechanism for local banks. Rather, the financial burdens imposed by GAT’s structure may have been designed to facilitate government actors’ acquisition of majority shares in these institutions. By tying banks to unsustainable loans and interest rates, GAT has effectively weakened their financial positions, forcing indigenous shareholders to cede control.
As banks fail to repay GAT’s loans or struggle with liquidity, the government, through GAT, has positioned itself to take over ownership. This strategy allows the government to increase its stake in these banks, consolidating control under the guise of financial rescue. Indigenous shareholders, who once owned the majority of these institutions, are being systematically forced out due to the unsustainable debt burden placed on them by GAT’s financing arrangements.
Restricted Access to GAT Funds
Another key issue is the selective nature of GAT’s funding allocation. Only a few banks were granted access to GAT’s bailout funds, while others were left to fend for themselves or were forced into liquidation. The opaque selection process has raised serious concerns about the transparency of GAT’s operations.
The exclusion of deserving banks, many of which were essential to local communities and businesses, led to their closure, further consolidating government control over the sector.
This selective approach has fuelled speculation that GAT was less concerned with stabilizing the financial sector and more focused on facilitating government actors’ influence over certain banks. The banks that received support were left saddled with high-interest loans, while those that were excluded faced closure. This situation not only weakened the overall banking system but also eliminated competition, consolidating power in the hands of government and foreign-owned institutions.
Long-Term Consequences for the Banking Sector
The high-interest loans provided by GAT, coupled with the adverse effects of the Debt Exchange Program, have led to a gradual erosion of indigenous ownership within Ghana’s banking sector. Many local banks have been driven toward insolvency, unable to bear the financial burden imposed on them by GAT’s stringent terms.
As local banks collapse or are forced to sell their shares, foreign-owned institutions have begun to dominate the market, currently at 60% foreign and the rest for local banks. This shift not only undermines the long-term stability of Ghana’s financial system but also limits the role that indigenous banks can play in supporting the local economy. The loss of local ownership is particularly concerning, as it diminishes the capacity of Ghanaian banks to contribute to national development, leaving the sector increasingly reliant on foreign capital and interests.
Impact on the Broader Economy
The weakening of local banks has had ripple effects across the broader economy. As these banks struggle to remain solvent, they reduce lending to businesses and individuals, stifling economic activity. Small and medium-sized enterprises (SMEs), which depend on local banks for credit, are particularly affected. With fewer loans being issued, job creation slows, and economic growth is stunted.
Furthermore, the public’s trust in the banking sector has been severely damaged.
The closure of local banks, the loss of jobs, and the ongoing uncertainty surrounding the fate of remaining institutions have made many Ghanaians skeptical about the government’s ability to manage the financial system effectively. The failure of GAT to deliver on its original promises has deepened this mistrust, raising concerns about the long-term stability of Ghana’s financial landscape.
Parliament’s Role in Ensuring Accountability
Given the growing concerns surrounding GAT’s operations, Parliament must play a central role in demanding accountability. Immediate steps should be taken to request a comprehensive status report on GAT’s financial activities, including an audit of how funds have been allocated and the impact on beneficiary banks.
Parliament should also investigate whether GAT has served its intended purpose, or if it has been misused as a tool for government actors to take over local banks.
By holding GAT accountable, Parliament can help restore confidence in the financial system and ensure that future interventions are designed to support, rather than undermine local institutions.
Closure or Redesign of GAT
There are increasing calls for GAT to be either closed or completely redesigned. The current operational model, which burdens banks with high-interest loans and management fees is unsustainable. Instead, a new model which prioritizes the financial health of local banks and promotes long-term growth must be developed.
Any future interventions should focus on transparency, fairness, and the equitable distribution of funds. By supporting local banks in a meaningful way, rather than exploiting them, Ghana can foster a more resilient and inclusive financial sector.
Conclusion and Recommendations: The Way Forward for Ghana’s Financial Sector
The Ghana Amalgamated Trust (GAT) was initially established as a stabilizing force for local banks, with the aim of helping them meet the new capital requirements set by the Bank of Ghana. However, this promise has been overshadowed by mismanagement, high-interest loans, and suspicions of ulterior motives tied to government control. Rather than strengthening the indigenous banking sector, GAT has contributed to the erosion of local ownership, increased financial burdens, and further destabilized the economy.
To restore stability, trust, and long-term growth in Ghana’s financial sector, it is essential to adopt more transparent and responsible policies. The government must address the root causes of GAT’s failures and ensure that future interventions genuinely support local banks rather than exploit them. By doing so, Ghana can rebuild confidence in its banking system and foster sustainable economic development.
Recommendations:
1. Parliamentary Summons for GAT Status Report:
Parliament must urgently summon GAT to provide a detailed status report on its activities since its inception. Ghanaians deserve transparency on how public funds were used, the performance of GAT’s investments, and the true impact on the banks it was meant to support.
2. Halt Extension of the Stability Fund to GAT:
Parliament should immediately halt any plans to extend the stability fund to GAT. The trust has shifted from its original purpose and is now functioning more as an investment vehicle that no longer benefits the indigenous banking sector or the financial system as a whole.
3. Comprehensive Review of GAT Operations:
A thorough review of GAT’s operations is essential. Parliament must conduct an independent audit of its activities to understand the full scope of its impact and determine whether GAT has strayed from its mission. This review should inform future decisions on the trust’s role in the banking sector.
4. Parliamentary Oversight in Rebuilding Indigenous Banks:
Moving forward, Parliament should take the lead in overseeing efforts to restore and rebuild indigenous banks. This includes ensuring that financial support is allocated transparently, and policies are designed to strengthen local banks rather than burden them.
5. Closure of GAT and Refund of Public Funds:
Ultimately, Parliament should consider shutting down GAT’s operations if it continues to fail in its mission. The GHS 800 million injected into GAT, along with any returns generated from its investments, should be refunded in full.
These funds must be placed under the custody of the Bank of Ghana, ensuring they are safeguarded for the benefit of the Ghanaian people and not used to further undermine the financial sector.
By taking these steps, Ghana can move away from the failed promises of GAT and begin rebuilding a financial sector that supports local banks, promotes growth, and restores public confidence in the system.
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