The failure of banking services regulator, Bank of Ghana (BoG) to enforce sections of the Banking Act in relation to connected and related lending and sanctioning culprits found to be engaged in it, has led to the collapse of some banks and financial institutions and forced others into distress according to banking consultant Dr. Richmond Atuahene.
“Many banks are now in distress due to the practice of connected and related lending. This is a situation where officials of banks and other financial institutions, especially board members and officials in managerial positions, influence decisions to facilitate or secure loans for friends, relatives and cronies who are not fully qualified or do not fulfill the laid down conditions,” he stated in an interview.
Connected and related lending is regarded as one of the key activities that led to the collapse of UT and Capital Banks as well as the current state of UniBank, he claimed.
According to him, most banks are now in distress because they have developed the appetite to lend to their relatives and people connected to them who end up defaulting on the loan repayment. Some refuse to pay while others refuse to pay with interest because their relatives are in office and could not cause their arrest.
“I experienced a situation as a board member of a Ghanaian bank where the board approved a loan of US$14 million for an oil marketing company.
“Worried about the decision taken, I asked the managing director what the client was bringing as collateral for the loan. He told me the refined petroleum product he needed the money to import would be the collateral. He said this in the presence of other board members who did not react.
“Can you believe that the money was approved for the company and some months later, they could not trace the manager and we later heard the company has folded up. The man has fled with the money while the directors, who approved the loan, are still holding executive and managerial positions in the banking sector. Nobody has been sanctioned. The point is, if we don’t sanitize the banking system and be proactive the nation will continue to experience more of these challenges,” he stated.
Section 45 (1) of the Banking Act 2004 states that “In considering the approval of credit facilities to any of its directors, executive officers or the persons connected to them, under sections 43 and 44(2), a bank shall satisfy itself that (a) the person to whom the credit facility is given has credit worthiness which is not less than that normally required by the bank or other persons to whom credit facilities are given; (b) the terms of the credit facility are not less favorable to the bank than those normally offered to other persons; and (c) the giving of the credit facility is in the interest of the bank.
(2) The credit facility shall be approved by all other directors of the bank at a duly constituted meeting of the directors where not less than three quarters of all the directors of the bank are present and the approval has been recorded in the minutes of that meeting.
Clause (3) of section 45 states that “A bank which contravenes subsections (1) and (2) shall pay to the BoG a fine not exceeding 1000 penalty units.
Despite these directives in the Banking Act, nobody has been caught or sanctioned for infringing on the rules, he concluded.
By Adu Koranteng