Panic withdrawals must be stopped

BY: Daily Graphic
Dr Ernest Addison
Dr Ernest Addison

In recent times, the banking industry has attracted the attention of the public due to some developments that led to the folding up of seven banks, with their liabilities and selected assets consolidated into two stronger banks to protect depositors from losing out.

Expectantly, some depositors lost confidence, especially in the local banks for the mere reason that all the affected banks were locally owned.

 As a result, many feared they would lose the funds that they had deposited with the remaining  indigenous banks.
This triggered panic withdrawals to the detriment of local banks and the banking sector in general.

Aside from all these challenges that confront the industry, the Governor of the Bank of Ghana, Dr Ernest Addison, has said the financial sector is strong and has a very promising future.

His assertion was recently reinforced by international rating agency, Standards and Poor’s, which upgraded Ghana’s long-term local and foreign currency sovereign credit rating to B from B-, with a positive outlook

 With non-performing loans constantly reducing and majority of banks and savings and loans companies posting strong financial results, Dr Addison had indicated the financial sector was still strong.

Speaking at the inauguration of the head office of Standard Chartered Bank, the governor, however, admitted that there were few institutions that were under stress due to bad institutional practices.

Those institutions, he said, were operating unsustainable business models. That, coupled with poor corporate governance practices, led to the misappropriation of depositors’ funds.

While we agree with Dr Addison’s assertion, we believe that despite the strengthening of the various indicators in the banking sector, there are still challenges eating up the sector.

These need immediate attention.

Although they seem perennial, we are of the firm belief that if nothing is done to resolve them, they would eventually outweigh the great efforts the BoG is putting in place to develop a strong banking system.

 We agree with the governor on the grounds that economic activities are being strengthened with robust export growth, higher industrial electricity consumption and higher tourist arrivals.

The overall growth path rate for the 2018 first quarter GDP was estimated at 6.8 per cent, compared with 6.7 per cent a year ago.

 Banks’ composite index of economic activities also showed a pick-up in early July with the country recording a trade surplus of US$1.4million at the end of August and headline inflation declining at a rate between 9.6 and 9.9 per cent over the past five months.

The cedi was strong, performing against other international currencies in the first quarter of 2018; however, there are a lot of pressures for which we anticipate normalisation soon for the cedi to take its level.

These indicators may show a strong financial system in general and the banking sector in particular but the challenges, especially to restore customer confidence, are still in the drains.

We, therefore, request the BoG to look into these matters and find lasting solutions to the panic withdrawal menace which is having a heavy toll on indigenous banks.

It is no gain saying that the distress that some banks are facing is not a true reflection of the whole banking industry as majority of banks and savings and loans companies have been able to meet the capital required by the BoG.

With banks that have not yet been able to meet it, we believe they are working strenuously to meet this requirement and by the end of the year, many more banks would have met it than originally anticipated. — GB