DISTRESSED stated-owned investment firm, the National Trust Holding Company (NTHC) has requested an urgent bailout from the government to enable it to meet its indebtedness to rural and community banks (RCBs) across the country.
The GH¢500 million bailout request is also expected to help the trust to settle its numerous retail customers, who have been victims of its liquidity crunch since 2019.
The company’s debt overhang has its roots in the financial sector clean up exercise that occurred since August 2017.
In spite of the huge monies spent as a result of the banking crisis that threatened that country’s financial landscape over the years, the deep-rooted challenges still linger with the rural and community banks feeling the brunt of the problem that has so far cost the taxpayer in excess of GH¢21 billion and counting.
Aside individuals and companies that suffered, many RCBs which were established many decades ago to help deepen financial inclusion as well as fund small businesses within their jurisdiction are on the verge of collapse.
This is as a result of their over-exposure to many of the financial institutions that have either collapsed or are on the verge of folding up.
The bailout, when granted, will also inject fresh capital into NTHC and help to restructure the company’s indebtedness to its clients.
The request for a bailout is also triggered by large volumes of demands from investors who have their funds locked up with the company.
The NTHC, which has a total portfolio of almost GH¢1 billion, has suffered some impairments from most of its assets and is currently unable to meet its debt obligations to customers and almost all the rural banks.
The Managing Director of NTHC, Isaac Charles Acquah, confirmed the company’s indebtedness to its clients in an interview with the Graphic Business and said it was working to restructure the debts.
“We have had some engagements with the rural banks and have agreed on some payment terms”, he said.
In total, more than GH¢100 million worth of investments from the RCBs are locked up.
All the 145 RCBs held their funds with the NTHC until the Central Bank clean-up which resulted in 53 finance houses and fund management companies’ licences being revoked.
According to the directors of these affected rural banks, the NTHC, which is a state-owned entity with SSNIT as its majority shareholder, has failed to pay claims that have been due since the Security and Exchange Commission (SEC) revoked the licences of some 53 fund management companies.
The government since December 2020 has coughed out GH¢8.5 billion to help pay investors of the defunct asset management companies – GH¢3.1 billion during the mid-year budged in December and GH¢5.5 billion after the 2021 budget statement was laid in Parliament.
The government in August last year also released a total of GH¢800 million to be paid to road contractors as debt owed them.
The work of the Rural and Community Banks are centred in the rural areas and with mostly those in the informal sector, especially farmers.
Locked up funds
Several attempts by these affected rural banks to retrieve their locked-up funds from the NTHC have yielded no results and this has negatively affected their operations in many ways.
This includes a decrease in income and profitability of the banks. Again, these affected banks are unable to lend enough to return profit to pay dividend to their shareholders.
A spokesperson for the rural banks who spoke to the Graphic Business on condition of anonymity said when the locked-up funds were paid, they would be able to give more loans to support farmers as well as small businesses in their operational areas.
This would eventually improve the economic activities in the rural areas and contribute to the well-being of the poor citizens and the nation as a whole.
They RCBs have, therefore, cancelled the corporate social responsibility activities they embark on in their operational areas that often relief the local government of such burden.
The locked-up investment with the NTHC has resulted in liquidity challenges, since such funds are inaccessible, and is not making them resourceful enough to withstand financial pressures as banks, with most of them recording worsening Capital Adequacy Ratio (CAR) as well as huge losses or poor profits.
There have also been some level of operational impediments since RCBs with deficiency in their CAR are not allowed by the BoG to make capital expenditure or embark on projects that could offer enormous benefits to them, denying them the opportunity to expand.
According to some of the directors of the affected RCBs, the excuse given by the management of the NTHC had been that the government owed them several millions of cedis and efforts were being made to retrieve the money to enable them to pay back client’s.