Professor Lord Mensah, a Financial Economist at the University of Ghana Business School, has criticised the decision to collapse uniBank during Ghana’s banking sector cleanup.
“GH¢2 billion was on the table — why ignore it?” he questioned, while speaking on JoyNews’ PM Express on Wednesday, July 30. He said the action defied the basic principles of banking.
“In banking, there’s what we call minimising the loss and then maximising the recovery,” he explained.
“And for me, this is a principle that’s a baseline for banking activities, be it at the central bank level or the lower bank level.” But those principles, he argued, were not applied in the case of uniBank.
He questioned the logic of shutting down a bank that had offered GH¢2 billion in a recovery proposal.
“If you have a bank that, as a result of solvency and liquidity issues, is owing to the tune of GH¢4.97 billion, and the bank has made an attempt to give you GH¢2 billion, you have to take it,” he said.
“You have to take it because in banking, as I mentioned earlier, you think about recovery, and then you minimise the possible losses.”
Prof. Mensah returned to a familiar concept in banking circles — the “too big to fail” doctrine. “
The existence of a bank takes several dimensions. You’re looking at government interest in there. You’re looking at employees’ interest. You’re looking at owners’ interest.”
He said a decision like collapsing a bank should not be made solely based on the failure of the owners to meet financial obligations.
“If a bank is about to collapse, you don’t look at just the owner’s perspective alone and say that the owners are not able to meet certain financial obligations. You have to look at what the government is getting from the bank. We’re talking about corporate tax here — between 25% and 30%.”
He stressed that jobs and livelihoods were also sacrificed.
“You have to look at the employees as well, people who are working and able to put food on the table for their kids. They’ve been able to manage their homes, put their kids through certain levels of education.”
According to him, collapsing uniBank in the name of protecting government interest ultimately hurt both the state and ordinary workers.
“If you collapse the bank as a result of pushing for the interest of the government, you end up sacrificing employees, and at the same time, the state as well.”
Prof. Mensah said the opportunity to recover part of the liability was clear, and ignoring that was costly.
“You’re talking about recovering GH¢2 billion, which will be part of the money that government used in cleaning up the sector.
“So why do you collapse the bank and then transfer all the possible obligations to the taxpayer to the point where the taxpayer had to commit about GH¢21 billion and over for the banking sector cleanup?”
In his view, the entire episode reflects a breakdown of sound banking judgment.
“If you take all these things into perspective, you come to realise that the principles of banking were not followed at the time we were cleaning up the banking sector.”
He agreed with fellow guest Martin Kpebu’s conclusion.
“That is where my good friend Martin Kpebu will say that the motive was more of witch hunting than following banking principles.”
