It is a fact that the banking sector crisis and the approach to resolving it as well as the effects on the indigenous banking space, businesses and the Ghanaian society will remain topical especially as we await levels of pass through effects.
Banking and financial sector crises have “cause and effect” dimensions. How to resolve such crises rests on the quality of assessment and approach to the resolution.
Political association of the causes and resolution of banking crises has never proven to be the best approach anywhere. It is fruitless to use the political association approach because the problems identified when NDC was in power were the same when NPP assumed the governance of the country. For example, if the revocation of licenses were due to inadequate and inappropriate capital, then this transcended the two political regimes. As we know, some banks (Construction and Beige) were granted their final universal banking licenses in 2017 with ceremonies graced by current government officials including the current BoG governor.
Let us be guided that the opening sentences of Sections 9 and 16 of Act 930 is that a final license to operate a bank is given when the Bank of Ghana is SATISFIED. In section 16, not withstanding the said satisfaction by BoG, if it is discovered later that the applicant for license provided false information on a material requirement such as capital requirement, the BoG is empowered to trigger its regulatory provisions to punish and the punishment may include revocation of license. The implication is that even in the presence of first class due diligence and professionalism, the regulator or any officer in charge may be misled or provided with false information.
In the face of the above, why should anyone attempt to treat the banking sector issues with an approach tainted with political pronouncements? Again, from the above, except in very clear circumstances where an officer of BoG personally acted incompetently, recklessly, unprofessionally, all those expecting prosecution of BoG officials should learn that that will not happen merely because a bank collapsed. Even when they are charged with any offense, the state must prove lack of professional judgment, knowingly engaging in reckless professional duty and fraud on the part of any such official. Unless we want to suggest that because a governor or deputy governor signed final licenses they are guilty of causing collapse of banks. That understanding will mean that current governor (Dr. Addison) and previous governors should be put before court, but it does not work “like that”.
If this understanding of Act 930 is the case, why would some actors decide to only major in political association of issues about the banking crisis? To resolve the financial sector problems of the scale currently ongoing, a comprehensive identification of documented causes, scenarios or portfolio of documented solutions with the right governance orientation, more objective and comprehensive budgetary estimates will help the stakeholders.
In my opinion, the comprehensive identification of causes was done between 2014/2015 and was also captured in various IMF reports. The causes identified led to many legal reforms in late 2015 and 2016. Most of the Non Performing Loans (NPL) of banks were linked to energy sector indebtedness to banks, which negatively affected their liquidity. Also, general fiscal management challenges and regulatory management across the banking and non banking financial sectors were clearly identified. To address these issues, the following Acts were put in place by the previous government in preparation to legally activate the process for the final steps to dealing with the identified causes of the banking crisis;
- Energy sector levies Act
- Public Financial Management Act
- Banks and Specialized Deposit-Taking Institutions Act
- Depositors Protection Act
- Securities Industry Act
What was left to be done was the implementation of the laws by doing comprehensive budget for the process from a principles-based perspective for implementation across the industry. This is where relevant stakeholders, including Parliament, failed in the structured process being followed until 2017. An indication is that by the time the BoG started the collapse (now termed cleanup), there was no comprehensive financial estimates for the process approved by parliament. One will recall parliament, at a point, initiated some bipartisan investigation into the exercise because not even parliament was well informed about the exercise. In the process, the approach adopted post 2016 led to the violation of SEC laws in some cases. Also, there occurred serious infractions of corporate governance rules. The Public financial management law, the fundamental rights of people were violated and by so doing, it began a cycle of panics which triggered acute liquidity problem for the financial sector. BoG pronouncements only created more panic withdrawals than saved the situation.
The reality, therefore, is that very clear steps were taken from 2014 till 2016 and continued from 2017 by the new administration. As to whether the approach from 2017 is the best will continue to occupy the discussion space either professionally or politically. It is clear that the effects of the cleanup is assuming legal dimensions, as well as a political, health and psycho traumatic experience for some Ghanaians. The narrative is fast changing over the past few weeks, where politicians and known supporters of both NPP and NDC are complaining about the negative effects of the current approach. Even people who were supporting the cleanup approach from 2017 have started complaining about it.
Politically convenient statements from the stakeholders will not take away the fact that, job savings is an infinitesimal portion of the joblessness created in the financial sector and real sector of the economy. The destructive effect on entrepreneurial finance and stock market performance is no more difficult to assess. The scale of psychological and social displacements cannot be underestimated. This crisis has moved more people from above the poverty line to below poverty line with high degrees of vulnerability within a short period of time for many Ghanaian livelihoods.
No matter how well intended the current approach, Government should work hard to restore the smiles of Ghanaians and the opposition parties should bring their best brains together to assure Ghanaians of how they can bring back the lost smiles.
Writer: John Gatsi, Professor of Economics, University of Cape Coast