Finatrade’s one billion debt crippling 26 local banks
The inability one of Ghana’s biggest commodity trading companies to meet its financial obligations is crippling the operations of about twenty-six local banks in the country.
The situation has sparked concerns it might hurt the banking sector in ways similar to what caused the collapse of two major national banks about two decades ago.
Finatrade Group is indebted to the various banks to the tune of about Gh₵1billion which is almost half of the Gh₵2.6billion stated capital of the entire banking industry, which boasts nearly Gh₵47billion in total assets.
This, according to Graphic Online’s sources within the banking sector was seriously hitting hard and threatening the survival of the banks.
The banks extended a lifeline credit facility to Finatrade and according to the company bad business was obstructing its ability to honour its repayment schedule.
The company has consequently been blacklisted by some banks for its continuous default of several repayment schedules and as a result, the banks have threatened to institute legal action to retrieve the debts owed it.
Graphic Online has gathered that some of the banks have planned to attach the company’s assets through court actions in moves to recover the debts, which were pushing up their non-performing loans.
Finatrade’s exposure to each bank goes beyond the single obligor limit of most of the banks it dealt with. (The limit beyond which you cannot exceed in giving out loan)
Graphic Online has also gathered that the Ghana Association of Bankers (GAB) was conducting a forensic audit to establish the actual extent of the bank’s exposure to Finatrade.
The Finatrade Group, in spite of the its several subsidiaries in Ghana, such as Sucatrade, Akuafo Adamfo, Dry Foods, Foods Inn and CCTC embarked on massive expansion in the last five years that has significantly affected its cash flow and liquidity.
The company reportedly borrowed from the banks to fund its expansion drive, whilst at the same time using short term loans to support long term capital projects, including a major venture into the cocoa sector of neigbouring Cote d’Ivoire.
High volatility in commodity prices, especially rice and sugar, has however resulted in trade losses that have affected the working capital of the company.
Sources also told Graphic Online the company incurred high losses in the manufacturing business due to the power crisis in Ghana - dumsor - and low economies of scale.
One of the company’s subsidiaries, Akuafo Adamdo, which is a licensed cocoa buying company, also defaulted in supplying cocoa beans to the Ghana Cocoa Board (COCOBOD) to meet a seed fund guarantee totalling Gh₵18million.
“The venture is currently facing liquidity squeeze as a result of Akuado Adamfo’s default, which has consequently led to the freezing of its working capital by the commercial banks’, a source told Graphic Online.
The net effect was that the group became heavily geared, with unsustainable debt levels thereby affecting the liquidity and operational performance across the group.
When the company was contacted, the Corporate Affairs Manager of the Finatrade Group, Mr John Awuni in a telephone response said the company was still engaging its creditors on a repayment schedule.
“The country owes and everybody is in one way or the other indebted and so let us be careful and not to do anything that will shake the public confidence in the banks,” Mr Awuni said.
At the moment all the banks were taking individual actions to recover the loans but sources tell Graphic Online when that fails, a joint action would be pursued.
For some analysts, they are worried about the rising levels of non-performaing loans that have forced many banks to review their credit policies in order to reduce bad debts on their books.
They also see the possibility of such a huge debt spread across the banking industry as an indictment on managers in that sector, including the regulator – Bank of Ghana.
The Bank of Ghana’s Economic and Financial Data, show that non-performing loans for the 11 months of 2015 stood at 14.1 per cent, as compared to 11.3 per cent at the end of December 2014.
But the worry is that some banks have more than the average number as they have about 40 per cent of their loans books remaining non-performing, a condition which could force some of them to limit their credit creation capabilities, especially to the private sector.