Collapsing troubled banks was painful decision- Dr. Ernest Addison

Governor of the Bank of Ghana (BoG), Dr. Ernest Addison, has revealed that the decision to collapse some five troubled indigenous banks was a painful decision.

According to the Governor, he had a personal relationship with the Managing Directors of the some of the banks that he had to withdraw licences from.

Speaking at the 18th Working Luncheon of the Ghana Association of Bankers (GBA), the Governor noted that he took the drastic action in the larger interest of the banking sector and the economy. 

Dr. Addison cited the Managing Director of Royal Bank, Osei Asafo – Adjei, as one person he was very close to but had to take an action against his bank.

“He is a personal friend and colleague and I was in Cambridge  University with him. But he happens to be a Managing Director of a bank that I had to dissolve,” he said.

He added: “Underpinning these rather unpleasant but needful decisions to ensure stability in the financial system was a series of infractions including, license acquisition by false pretences, inadequate capital, high levels of non-performing loans owing to poor liquidity and credit risk management controls, and above all weak corporate governance structures.”

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Background

The Bank of Ghana last week revoked the licenses of five universal banks, namely, Royal Bank, Construction Bank, Sovereign Bank, Unibank and BEIGE Bank. According to the central bank, the action was taken due to the inability of some of the banks to meet existing minimum capital requirement.

Some of the troubled banks also faced liquidity issues while others obtained their licences through dubious means.

Developments in banking sector

The Governor noted that despite these challenges, the banking sector is recording strong growth prospects as a result of the collective effort to return the industry to stability. 

As at end-June 2018, total asset of the industry was valued at GH₵100.3 billion, growing by 15.7 per cent from the corresponding period last year, he revealed.

This growth figure was influenced by credit off-take, which increased year-on-year by 3.1 per cent to reach GH₵38.7 billion.

The asset growth fueled expansion in branch and ATM networks, and increased competition evidenced by product and service deliveries.

He also noted that financial soundness indicators of the banking industry have broadly improved although pockets of weaknesses remain.

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Supporting local banks to recapitalise

The Governor at the Ghana Association of Bankers event also announced that will provide financial support to other indigenous banks to meet the new capital requirement of GH₵ 400 million. 

However, he said, “the Government has indicated that such support will be limited to indigenous banks that are solvent, well-governed and managed, in full compliance with the Bank of Ghana’s regulatory requirements and able to demonstrate that they have been unable to access private sector solutions for recapitalization due to market conditions.”

Photo: Five Managing Directors of the dissolved banks: L-R: Stephen Kpordzih (Construction Bank) Osei Asafo - Adjei (Royal Bank) Dr Duffuor II (uniBank), Johan Rheeder (Royal Bank) , Mike Nyinaku (Beige Bank).

Credit referencing

He also disclosed that the central bank was reviewing the governing legislation on the Credit Reference System to require banks to submit both positive and adverse information on borrowers to the bureaus through a new portal that has just been developed. 

The BOG is also working on the Collateral Registry System to address some outstanding issues with foreclosure.

 Economy on the path to growth

 The Governor noted that,  overall, the country is on the path to full economic recovery with a strong first quarter growth.

The growth pickup “reflected a stronger rebound in the services sector. Also, the Bank’s Composite Index of Economic Activity (CIEA) registered a pickup in the year to May, reflecting increased industrial consumption of electricity, construction and exports,” he said.

These, supported by positive business and consumer sentiments on the economy, should spur growth over the medium term.

 Ghana Association of Bankers

In his address at the Working Luncheon, Vice President of GBA, Frank Adu, asked the Governor of Bank of Ghana to ensure that recent regulation actions do not impact negatively on banks in good standing especially the local ones.