Banks have been asked to uphold tighter controls and be extremely thorough by undertaking strict risk assessments in their dealings with the government , state-owned enterprises and other loan seekers in the country.
This is to help protect both the funds of depositors and shareholders while preventing unnecessary over-exposure in their quest to make more profits.
Investment banker, Dr Samuel Ankrah, gave the advice when he shared some perspectives with the Graphic Business on the overexposure of the banks to the Volta River Authority (VRA)
“First of all, it was not a wrong business initiative for the banks to lend to the VRA. It's rather presumably bad faith on the part of the debtor, the government, which did not honour its side of the bargain,” he said.
Dr Ankrah, who is also the Chief Executive Officer of the African Investment Group, said, “this is why I ask that their approach should be tighter as they do to any other borrower.”
“The thinking of these banks that sovereign debt is the best to go for is clearly challenged in this instance; I believe that if adequate measures were put in place by the banks like they usually do for any other private business, they would not have overexposed themselves as it is currently,” he added.
“Again, I blame the banks for not diversifying their loan book although I sincerely understand that shareholders are constantly seeking better performance and pushing banks to get more aggressive but in this case, they should not have been reckless,” he explained
Dr Ankrah did not also spare the regulator, the Bank of Ghana (BoG), which, he said, did not undertake a proper oversight role in this instance.
This reflected in the inability of the bank to properly monitor the loan books of the banks, he said.
“India is facing the same tragedy, where well known businesses were issued loans without adherence to strict risk assessments,: Dr Ankrah said.
His comments further revive concerns raised by financial experts about the nature and form BoG’s supervisory and oversight role has been.
The recent failures of some microfinance companies had been blamed on the central bank, with some saying that it had failed to exercise supervisory controls that would have ensured that unscrupulous personalities did not swindle unsuspecting people.
Although many have been silent on the VRA issue, some analysts have described the action of the banks and their regulator as reckless, dangerous and unacceptable because of what they feared could have easily crippled the banking sector, a vital player in the survival of any economy.
The VRA’s indebtedness to banks rose to about US$930 million (GH¢3.7bn) in March, this year, a situation which compounded fears that the debt levels in the energy sector will mess up the loan books of banks and subdue their growth, similar to what happened in the 2015 financial year.
The authority's indebtedness was exclusive of "interest, rollover fees and other charges," documents available t the Graphic Business indicated.
It showed that apart from the Africa Export-Import (AFREXIM) Bank, which is an international lender, 14 of the affected banks were based in the country. Nine of them are foreign-owned and they were Ecobank, Standard Chartered Bank, Zenith Bank, Stanbic Bank, Guaranty Trust Bank, UBA, Access Bank, First Atlantic Bank and the Ghana International Bank.
The Unibank, UMB, CAL Bank and Fidelity Bank are the locally-owned banks loans and advancements were also outstanding as of March. The authority's outstanding financial obligation to AFREXIM was US$120 million. This means that the company's obligation to the 13 banks operating in the country totaled US$810 million, equivalent to GH¢3.2 billion (using an exchange rate of one dollar to GH¢3.93).
This is more than 65 per cent of the current value of non-performing loans (NPLs), which was reported at GH¢4.9 by the Bank of Ghana (BoG) in March, this year.
Should all of VRA's debts be overdue, the credibility of the NPLs figure could be in doubt, given that it raises questions over the share of the company's obligations to the industry's bad loans.
From the mid-year financial results of the banks, it is clear how their over exposure not to the VRA alone but to other big companies in the country have affected their performance.
An attempt to elicit comments from some of the affected on the matter proved futile as they remained silent on the issue.
Sources close to some of the banks said that the Chief Executives Officers of the banks had been asked to stay away from the media on the issues.
As a result, it is not clear what lessons the banks will draw from the unfortunate experience they have been subjected to and how it will guide their future operations.
Based of the abysmal performances of the banks as far as the bad debts and the US$300 million hair cut from the government is concerned, shareholders are likely to have no dividends paid them and if lucky, will have it heavily slashed to a near insignificant figure. Suffice to say that the shareholders would have been happy should the risk taken by their banks would have earned them a higher dividend.