Our wobbly banking sector and matters arising

The collapse of Lehman brothers (once the fourth largest investment bank in the USA) in September of 2008 was a seminal moment that highlighted the financial crisis that rocked the globe in 2008.

Fast forward to August 2017, and Ghana’s own seminal moment within its financial sector experienced its own version of Lehman brothers with the collapse of UT Bank and to a lesser extent Capital Bank, although I must admit that comparing UT Bank to Lehman brothers is simply, outrageous. I concede.

But wait a minute, just when we (the laymen and women) thought the clouds have settled on happenings within the banking sector, a bigger tsunami within the same banking sector hit the country from the Governor of the central bank on Wednesday, 1 August 2018 with the revocation of the banking licenses of five banks. Yep, you heard it right, five banks! And the subsequent formation of a new indigenous bank to be called consolidated bank from the ashes of the collapsed banks. This news certainly got my pulse racing and my mind wondering what and when next as far as the next wave in the banking sector is concerned.

The heartbeat of economies around the world; be it developed or developing is its banking sector or broadly speaking its financial sector which aligns perfectly with the assessment of the governor in addressing the media that “Ghana needs a strong and stable banking sector to drive the process of economic transformation” whiles highlighting the consequence of a weak banking sector. How did our indigenous banks get to this dire situation is worth finding out although the central bank’s asset quality review (AQR) conducted in 2015 and updated in 2016 gives a clue ranging from the inadequate capital, high levels of non-performing loans (NPLs) and weak corporate governance. A report by the Oxford business group published in 2017 on the Ghanaian banking sector teased out the difficult year of “2015” due to a weakening macroeconomic condition prevailing in the country which saw the banking sector growth fall below the rate seen in 2014.



The report highlighted how banks used 2016 to retrench, lower their risk exposure and reversing weaknesses in their loan portfolios that were a hangover from 2015 whiles remaining bullish on the sector’s prospects come 2017. Industry watchers and players have for a long time advocated for the government to settle its indebtedness to the banking sector since the chunk of non-performing loans are as a direct result of government failure to settle arrears owed contractors and the BDCs of which the ESLA Plc is doing through the issuance of the ESLA bond for the latter. This is to improve the liquidity or capital strength of the banks and enable them to meet the minimum capital requirements set out by the central bank by December 2018.

Why the BoG can’t be absolved in all this

With all that has gone on within the banking sector from August 2017 till now and against the backdrop of some of the grim pronouncements and cases of criminality in the collapse of these banks by the central bank relative to the directors of the affected banks, I guess it is just right to question officials of the central bank on their roles in all these messes.



The central bank should tell the good people of Ghana how some of these banks were able to obtain their license through false pretences in the form of suspicious and non-existent capital. Was there complicity or sheer dereliction of duties/responsibilities on the part of the officials of the central bank? It is all well and proper that directors of the affected banks are being probed by EOCO but it should not end there.

The bank of Ghana officials along the operational chain i.e. licensing and supervising units should also be hauled before the EOCO to answer questions on their respective roles leading to these unhealthy events which have the potential to wipe away public trust and confidence within the sector. I must admit that as someone who has worked in the educational sector where various state regulators require you to submit annual/periodic data to it, I can cut the central bank some slack since I am well versed with the challenges that regulators are faced with relative to verification and confirmation of such data no matter how provisional or final it is.



Is more the better or vice-versa in the banking sector?

Starting in 1992 when the government began to privatize some state-owned banks and the liberalization of the financial sector adjustment programme (FINSAP) and the financial sector strategic plan (FINSSIP) leading to a spike in the number of domestic banks and subsequent entry of foreign banks into the sector.

Ghanaians are yet to fully enjoy the full benefits of competition within the sector despite the considerable gains. The business community and the general populace still consider the cost of credit/lending rates to be very high despite the consistent reduction of the base rate within the past eighteen (18) months. Banks across the landscape are basically offering the same homogenous products/services.

For a country of an estimated population of 28 million, having close to thirty (30) banks is worth discussing when benchmark against Nigeria with a population of over 180 million people and a bank strength of 26 and South Africa with a population of over 65 million people and a bank strength of less than 25.

Expectations

Achieving financial inclusion is a core component of UN – SDGs and as such safeguarding players within our banking spheres require a collective effort from the government, the bank of Ghana and we the citizens. What this means is that as it is done in “serious” countries, this unfortunate period in the life of our banking industry must afford players and regulators the opportunity for them to clean up their acts whiles instituting concrete policies /reforms/frameworks and guidelines that go to the heart of this disturbing trends with the broader objectives of avoiding a repetition of such acts in say five (5) or ten (10) years’ time from now. The earlier the BoG roll out and enforce the Basel II and III supervisory frameworks as well as full implementation of IFRS 9 by the banks together with all the measures it espoused during their press conference; the better for us all. We need our indigenous banks to be competitive. PERIOD.