BOG falls back on NDC plan as banking sector struggles to survive collapse of banks – Minority

BOG falls back on NDC plan as banking sector struggles to survive collapse of banks – Minority

“The Performance of the Banking Sector since January 2019 (After the so called reforms) shows a weak and struggling financial sector.”

That is according to the minority in Parliament who are disputing claims by the Bank of Ghana that the financial sector is rebounding after the collapse of several financial institutions.

Addressing investors and businesses from across the world at an investment forum organized in the honour of the Asantehene’s 20th anniversary celebration in Kumasi in May, 2019, Second Deputy Governor of the Central Bank Elsie Addo Awadzi claimed the banking sector has already begun to yield the positive results of the “collapse of some banks”.

 “We can say that these banks are much better capitalized, more liquid, stronger, better governed and employ better risk management systems and processes to ensure that the monies we deposit with them are safe,” she said.

The minority however says the evidence suggests otherwise.

“The capital adequacy of the Banking sector has deteriorated from 21.8% in January to 19.1% in June 2019. Capital adequacy as measured by Basel II/III has worsened sharply from 17.5% in January to 16.3% by end of June 2019,” they stated.

The minority was speaking at a press conference to respond to issues surrounding the financial sector following the revocation of the licenses of some banks, microfinance institutions, savings and loans companies.  

The minority said the current situation has been occasioned by government’s decision not to follow the blueprint left behind by the former administration which required that the Internal Capital Adequacy Assessment Process (ICAAP) be implemented before a new minimum capital requirement is imposed.

Under ICAAP banks are first required to clean up their balance sheets by getting rid of non-performing loans, lowering debts and toxic assets before they are recapitalized.

 “The implementation of the minimum recapitalization without ICAAP is like pouring water into a leaking bucket. The new capital disappears with write-offs imposed by IFRS9. This is evident in the deteriorating capital adequacy of the banks.”

“The BOG itself has had to write off a whopping GH¢3.1 billion from its loan books with several banks experiencing same in compliance with IFRS9. And strangely, blames the previous government for these write-offs,” the minority said.

The group said the handling of the issues in the banking sector would only lead to the situation where banks will be forced into a second round of recapitalization after being forced to find GH¢400million of a new capital.

“What we are seeing is the erosion of the capital of these banks through write-off of toxic loan assets on the books of the banks which could lead to another of recapitalization.”

“The banks are struggling with weakening liquidity as measured by the BOG liquidity indicators. Core liquid assets to total assets has deteriorated from 26% after recapitalization to 23.9% whilst core liquid assets to short term liabilities has deteriorated from 34% after recapitalization to 30.6%,” the group said.

According to the minority the situation has deteriorated to the extent that “for every cedi short-term liabilities (such as customer deposits) the banks have cash or liquidity to cover only 30 pesewas.”

The minority is of the opinion that the banking sector would have been in a better situation if the Central Bank had not ditched the blueprint left behind the John Dramani Mahama government for dealing with the situation.

“It is instructive to note that after abandoning the NDC administration’s main programme of reform, built around the ICAAP, the BOG has just contracted IMF to train its staff to implement the NDC ICAAP. This is after collapsing the banks and Savings and Loans companies that were going to benefit from ICAAP to survive.”

“The Ghanaian Tax Payer would have been spared the high cost of this chaotic reform if BOG had listened and followed the reform program initiated by the NDC and the Governor had not been a needless talkative that caused panic and crushed confidence in the financial sector,” they opined

Story by: Sena Nombo/Radiogoldlive.com

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