Financial sector cleanup: All customers to receive cash instead of bonds

All customers of the collapsed micro finance, savings and loans companies will effective Wednesday, September 16, 2020 receive cash instead of the earlier promised government backed bonds.

This follows the decision to convert all the government backed non interest bearing commercial paper (bonds) into cash at no discount in respect of the payments to affected depositors of the collapsed companies.

It will be recalled that the government had provided a combination of cash and bonds to pay depositors of the collapsed financial institutions, being 347 microfinance and 23 savings and loans companies.

The Receiver, Eric Nana Nipah made the new arrangement of cash payment to all customers known in a press statement issued Tuesday evening, [September 15, 2020].

The payment takes effect Wednesday, September 16, 2020 and will be paid by the Consolidated Bank of Ghana (CBG).

The new arrangement affects only depositors of the 347 microfinance companies and 23 savings and loans whose claims have been validated in the resolution process.

In the Receiver's statement, a copy of which is with Graphic Online, Mr Eric Nana Nipah explained that the decision had become necessary due to concerns raised by affected depositors in relation to the bonds.

"The Depositor Payment Scheme set up by the Receiver/Official Liquidator to administer and fully settle all valid depositor claims in the resolution process has largely been successful; however an area of concern for most of the affected depositors is with the features of the Commercial Paper [Bond] used to partially settle the indebtedness of these resolved companies to those depositors whose claims were not fully extinguished by the payment of cash to them."

"These depositors have indicated that the features of the Bond, being non-interest bearing and with a tenor of five years do not make the Bond commercially attractive, thus creating a significant loss in value of their claims to them."

He added that the new arrangement would also provide additional liquidity to the financial sector.

Govt gives additional cash of GH¢3.56 billion to Receiver to settle debt

"Government has made available to the Receiver/Official Liquidator additional cash amounting to approximately GH¢3.56 billion, equivalent to the total value of the Bond component of funding required to fully satisfy the indebtedness of the resolved entities to their body depositors," the Receiver's statement added.

"It is the expectation that this additional cash of approximately GH¢3.56 billion will replace the Commercial Paper which has been issued by government in favour of affected depositors of these companies in resolution."

Implication

Consequently, depositors who have either received or are due Commercial Paper in partial satisfaction of their claims will now receive CASH payments at no discount for the Commercial Paper they have either received or is due to them, the statement explained

"Please note that depositors who have already discounted all or part of their Commercial Paper will receive a full refund in cash of the discount they suffered," it added.

"As a result of this new funding arrangement provided by government, all valid depositor claims in the resolution exercise worth GH¢6.49 billion in value are being fully settled in CASH."

"Notice is hereby given that with effect from Wednesday 16 September 2020, affected depositors may contact any branch of Consolidated Bank Ghana Ltd (CBG) the paying bank to access their newly created Cash accounts which were originally designated as Commercial Paper (Bond) accounts at the bank ie CBG."

Background

In line with the government’s commitment to protect depositors funds and to shore up public confidence in the financial system, the Bank of Ghana shut down 347 microfinance companies, 23 savings and loans and 39 micro-credit companies by revoking their licenses.

The BoG then appointed Mr. Eric Nana Nipah as Receiver for the specified institutions in line with section 123 (2) of Act 930.

The depositors of the defunct companies were notified of the government's decision to convert deposits into government backed non interest bearing commercial paper (Bonds).

The government made available to the Receiver of the above resolved companies, as well as the Official Liquidator of the Micro Credit Companies in official liquidation, a combination of cash and Commercial Paper totaling approximately GH¢6.49 billion to fully settle the valid depositor claims on these institutions.

As the Receiver/Official Liquidator brings the processing and payment of valid depositor claims to closure, a total amount of approximately GH¢6.07 billion has been paid to some
depositors of these resolved companies, leaving an amount of approximately GH¢402 million to be paid to the remaining depositors, to fully settle all valid depositor claims in the
resolution process.

The claims include validated claims previously assessed by the Receiver/Official Liquidator as Late Submission claims owing to the fact that they were submitted after the extended deadline for the submission of depositor claims in the resolution process.

Of the total amount of approximately GH¢6.49 billion required to fully settle all valid depositor claims in the resolution process, about GH¢3.56 billion of these claims in
value representing approx 55% of total claims payable are being settled with government of Ghana backed Non-Interest bearing Commercial Paper (Bond), with the remaining
approximately 45% in value of claims payable, worth approximately GH¢2.93 billion being settled with Cash.

It is the Bond that has now been converted into cash.

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Below is a copy of the Receiver's statement