Good move, BoG, but….
It was crafted on an image of fiction that all was well with the country’s banking sector until 2017 when the current leadership of the Bank of Ghana (BoG) began a mission to rid the sector of weak and distressed banks.
It was perhaps one of the boldest and most decisive measures taken by any BoG governor to avert a ticking time bomb that could spark a financial crisis.
The completion of the recapitalisation of the banking industry has resulted in some degree of consolidation, as envisaged by the BoG.
The exercise has led to the number of banks reducing from 36 in 2017, when the reforms started, to 23 currently.
The Governor of the BoG, Dr Ernest Addison, said at a press conference in Accra that the central bank had “to take tough but necessary steps to clean up the banking sector and reposition it to support the economic growth and transformation agenda of Ghana”.
He expressed satisfaction that the exercise had come to a successful end without a single customer losing money.
The governor was upbeat about a strong, stable and liquid banking sector that could support the government’s economic transformation agenda.
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The whole reforms in the banking sector cost the state some GH¢12 billion to avert a crisis in the financial sector.
For us at the Daily Graphic, this is a good cause for cheer. Ghana’s banking industry is now more solid than it was in mid-2017, comprising fewer but substantially stronger banks, all of them armed with bigger capital than hitherto, and just as important, now subject to better supervision, which is forcing more improved corporate governance and risk management practices than what used to pertain.
Most important, all these reforms have been done without any depositor losing any money, although it has been achieved at an initial cost of GHc12 billion to the state.
But, expectedly, part of this will be recovered over time from the shareholders of failed banks identified by the central bank and confirmed by the courts as having illegally fleeced their respective banks.
The reforms were implemented, despite intense pressure from various stakeholders and segments of the public. The BoG stuck to its guns with regard to compliance with its 233 per cent increase in minimum capital to GHc400 million by December 31, 2018.
No bank that failed to comply or at least is in the process of complying through mergers approved by the BoG still has a banking licence; the last ditch financial support for some indigenous banks has come through equity finance provided by the private pensions industry and facilitated by the government.
We, therefore, commend the governor and his team at the BoG for successfully completing these aggressive reforms within time.
For us, if the new corporate governance directives introduced by the BoG in 2018 are diligently implemented, it will ensure that the practices that caused those problems will not be allowed to happen again.
For now, there is a refreshing sense of optimism blowing around bank boardrooms, since huge problems, for long simply swept under the carpet, have now been decisively resolved.
But we dare say that the exercise is not yet complete until the challenges facing savings and loans companies, rural banks and microfinance companies are resolved.
We, therefore, call on the central bank to direct its attention to the other tier of financial institutions, just as it has done for the universal banks, so that there will be complete sanity in the financial sector.