The Head of Corporate and Investment Banking, Stanbic Bank Ghana, Mr Kwamina Asomaning, has blamed banks and corporate organisations in the country for contributing to some of the solvency and liquidity challenges in the financial services sector.
He said the banking sector was fraught with credit problems such that banks needed to change their posture with the problem of credit while corporate organisations also needed to change their behaviour.
“The blame must be shared equally. So much emphasis is placed on collateral which sometimes can’t be easily marketed,” he stated at the Graphic Business/Stanbic Bank breakfast meeting at the Labadi Beach Hotel in Accra yesterday on the theme, “Liquidity and Solvency Management - Boosting the health of banking in Ghana.”
He mentioned regulation, behaviour and policy as the three pillars needed to ensure a stronger and safer banking sector.
The other area, he said, would require a change in the behaviour of corporate organisations as most of those who caused the banks problems had very weak balance sheets and borrowed from multiple banks.
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“We need to see a change in behaviour of the businesses that have been borrowing from the banks.
“A lot of these businesses, rather than go in for equity from the onset, borrow to start businesses and don’t share the risk because they want equity to themselves,” he stated.
Mr Asomaning emphasised the need to see some policy interventions to encourage capital formation to develop the local markets to meet the needs of investors as opposed to entities that were looking to invest heavily.
“We need to see government policies shift towards a greater level of capital formation to develop markets,” he added.
Mr Asomaning explained that solvency and liquidity both referred to the state of financial health of a business or bank; while solvency is the capacity of the business to meet its long-term financial commitments, liquidity refers to an enterprise's ability to pay short-term obligations.
Mr Asomaning noted that the Bank of Ghana (BoG) had taken steps to restore banks on the path of sustainability through a new rule that required licensed banks in Ghana to increase their minimum capital levels to GH¢400 million by December 31, 2018.
He said the increased capital was to serve as a buffer against possible external shocks and it was also risk-based, which meant that banks would be expected to hold both minimum capital and additional buffer capital to reflect the risks inherent in their portfolios.
“This approach is consistent with the principles of the Basel II and Basel III regulation. Assets, liabilities and equity help banks to build up to the levels of solvency. What the central bank is doing essentially is to ensure that banks put a cap on their risk assets,” he said.
“Liquidity ratio is probably to ensure that banks do not invest all their deposits into long-term loans because such loans often don’t pay up as well as expected and these loans become bad. So, it is necessary to ensure that the banks set aside some of their deposits to meet their short-term obligations,” he stated.