Late last week, the Bank of Ghana announced the liquidation of 23 non- bank financial intermediation firms for reason of insolvency. For the avoidance of doubt, we agree with this move, just as we have supported the liquidation of the banks and subsequently, the micro-finance institutions that the central bank has closed down before the latest wave of closures.
Further-more we applaud the prudence with which the BoG has gone about this task. By announcing the closures on a Friday afternoon, the central bank sagely allows the dust to settle somewhat before banking hall hours come around, thus preventing immediate panic-driven action by depositors. By the following Monday calm would have returned among affected depositors along with a full understanding that government has fully committed to giving their deposits in full, in a planned, orderly and timely manner.
Much more importantly, from a strategic point of view, the BoG has clearly indicated that the mass liquidations that it has inflicted on the banking, savings and loans, microfinance and specialized financial intermediation industry segments, will not be expended to the rural and community banking (RCB) sector. This in part because of the relatively strong asset quality of the RCB sector compared with other genres which in turn is the result of their better corporate governance and risk management quality as enforced by the ARB Apex Bank. But is also in part a strategic move on the part of the BoG itself which recognizes both their crucial importance to Ghana’s financially fragile rural economy and the high sensitivity of their customers to news – real or manufactured – concerning their impending regulatory fortunes.
For all this we applaud the BoG. But not for completion of the financial sector clean up as it now claims, simply because it has not been completed.
Five of the biggest financial intermediaries under the regulatory purview of the BoG remain significantly undercapitalized, nearly eight months after the deadline for meeting new minimum capital requirements. These are the five universal banks supposed to have been recapitalized, latest by the end of March this year, through the proceeds of bond issuances under the state-promoted Ghana Amalgamated Trust initiative. It is now quite clear that this initiative, as originally conceived will not happen. So far though, government has refused to admit to its failure not to talk of announcing a plan B for the five undercapitalized supposed beneficiary banks.
We therefore roundly criticize the BoG for claiming that its clean-up task has been completed when clearly it has not; this amount to sweeping a major, festering wound under the carpet in precisely the same way as its predecessor central banking management did, and for which the incumbent management has continuously blamed it. Indeed, the current abdication of regulatory responsibility is even worse in that it pretends that the problem has been resolved, rather than just failing to address an issue which it admits to existing.
This newspaper insists that the issue of the five undercapitalized banks must be resolved shortly and effectively for two simple reasons. One is that, the current situation remains a threat to the safety of their depositors’ funds and the structural integrity of the entire financial intermediation industry. The second is that the current situation is clearly unfair to the financial intermediaries that have had their licenses revoked for financial shortcomings.
Indeed, the credibility of the BoG as an unbiased regulator is at stake. This is not nearly good enough for Ghana’s single most important financial institution.