BoG to liquidate insolvent S&L, microfinance institutions

BY: Emmanuel Bruce
Dr Ernest Addison — Governor, BoG
Dr Ernest Addison — Governor, BoG

The Bank of Ghana (BoG) has begun discussions with the Ministry of Finance (MoF) as it plans to liquidate all insolvent savings and loans companies and microfinance institutions in the country.

Addressing the media after the 84th Monetary Policy Committee (MPC) meeting in Accra on Tuesday, the Governor of the central bank, Dr Ernest Addison, said he was aware there were some savings and loans companies which were faced with challenges and gave the assurance that the BoG would soon come up with measures to stabilise that segment of the financial sector.

“We are in discussions with the Ministry of Finance on measures that are going to be taken to stabilise that segment of the financial sector,” he stated.

He said the measures would not be different from those used to address the challenges with the universal banks.

“If some of these microfinance institutions are insolvent, they will have to be liquidated. That’s the solution to insolvent financial institutions,” he stated.

Being cautious

He said the central bank was, however, being cautious about these measures because it would come at a cost to the country.

“We have to be careful because the deposits of these savings and loans institutions are not insured so there has to be some costs associated with dealing with the insolvency. It will have implications on the country’s budget and this is where we are in discussions with the MoF,” he explained.

“We are discussing the sort of interventions to introduce in the non-bank financial sector and who will bear the cost of the resolution. That is where we are at the moment and once we reach a conclusion, the necessary actions will be done,” he added.

Deposits safe

On the effects of the recent collapse of seven universal banks on other segments of the financial sector such as microfinance institutions, Dr Addison again gave the assurance that the deposits of financial institutions in the affected banks were safe.

“Because of this interconnectedness between financial institutions and the impact of that on sustainability, we were very careful to ensure that financial institutions that are exposed to each other will be taken care of under a new arrangement,” he noted.

 “They have all been guaranteed and are receiving their funds,” he added.

Distressed
 microfinance institutions

The Bank of Ghana (BoG) in March stated that about 705,396 depositors of distressed or collapsed microfinance institutions (MFIs) and rural and community banks (RCBs) were at risk of losing a total of GH¢740.5 million.

The amount represented deposits currently locked up in the 272 RCBs and MFIs which were either in distress or had folded up.

In terms of significance, the deposits under distress formed 8.81 per cent and 52.49 per cent of industry total deposits of the RCBs and the MFIs, respectively.

Giving a breakdown of the figures, Dr Addison said, of the 566 licensed MFIs in 2018, 211 were active but distressed or folded up.