Which bank is next to go down after Sovereign Bank?

The crisis in the banking sector in Ghana has been known for some time now – at least, for more than six years. But the biggest question has always been what was being done to forestall the crisis from blowing up into major banking catastrophes leading to collapse of banks with its eventual financial losses to depositors. Only last week the fourth bank in a row, Sovereign Bank, licensed barely two years ago, has gone under. It has been known that some nine banks are in distress. With four gone, how many will go soon?

As it turned out, the solutions as applied by the central bank, didn’t work. The Bank of Ghana, the regulator of the sector has long been viewed as ineffective in applying the rules governing the sector. The Bank of Ghana has not been proactive in applying the banking laws of the country, often choosing unorthodox means to manage the crisis.

While it is no secret that one of the biggest problems of Ghanaian banks is the unsustainable bad loan portfolio, other factors contributing to the situation include related party loans and often questionable loans to management.

Some banks are also known not to adhere to good corporate governance practices, one of the factors that led to the banking crisis in the United States in 2008. Some banks haven’t published their financial statements as required by law in the last three years!

Since August last year, about four banks have gone bust. In August 2017, UT Bank and Capital Bank collapsed. Then in March 2018, the Bank of Ghana appointed KPMG as official administrator of UniBank – a bank that is connected to a former Minister of Finance of the country, Dr. Kwabena Duffour.

Why is the Bank of Ghana ineffective in enforcing its rules?

It’s not hard to see why the Bank of Ghana can’t enforce its own regulations. The central bank has some autonomy, but pervasive and even vulgar political interference makes it impossible for the Bank to act when banks and other financial institutions under its supervision are violating the laws. Professionals working in the Bank freeze in their tracks when the need to take decisive actions, especially when there is the need to sanction offending banks arises.

What’s surprising is that the political interference is so abrasive and done with such impunity. For instance, anytime a new political party wins an election and takes over government, hawks within the party immediately force governors out. The ruthless and often immoral conduct of pushing out governors and their deputies still with some time to serve in office are sometimes justified with the crude excuse that such appointees are members of the appointing authorities, often the ruling party that was defeated in an election. The appointments are seen as spoils of war, ready to be passed onto the next individual considered to be sympathetic towards the new winners.

The ominous hand of political interference, which also appears to influence the granting of banking licenses makes it difficult for the regulator to enforce its own rules.

It is common to read notices in the newspapers with the Bank of Ghana announcing that a particular financial institution was operating without a license and then it is followed with an advice to the public not to do business with that entity. Any individual or group of people operating a financial institution without a license from the Bank of Ghana would be violating a law – it is therefore appropriate for the Bank to sanction such individual or group of people with the appropriate law, but all the Bank does is to issue a warning and there is hardly any prosecution.

While officials of the central bank would never openly admit that they do not prosecute offenders of the Banking Law because of political pressure, suspicion is rife among Bank watchers that, politics is the main reason why these violators are not prosecuted.

Banking Supervision

The Banking Supervision Division of the Bank of Ghana is mandated to regularly peek into what is happening in the financial institutions. It is to scrutinize the activities of institutions like banks, microfinance and other non-bank institutions to ensure they are playing by the rules. But it is severely understaffed. It doesn’t have the necessary number of officials to manage the large number of banks and non-bank institutions littered around the country.

As at April 2018 there are 35 licensed banks in Ghana and five other foreign banks have representative offices in the country.

According to the Bank’s records there are 140 licensed rural and community banks as at April 2016, there are 68 licensed specialized deposit-taking institutions as at April 2018, and they include finance houses, remittance companies, savings and loans companies, leasing companies and leasing and finance companies. There are 431 licensed forex bureax, 17 of which are inactive as at November 2017.

The Bank has given provisional approval to 25 of what it describes as Tier-2 microfinance institutions, five Tier-3 money lending institutions and one Tier-3 Financial NGO.

As at March 8, 2018, the Bank has one list of a total of 269 microfinance institutions it says are in general compliance of its guidelines as at December 31, 2017, and another list of 42 in the same category but categorized as money lending and a third list of eight microfinance institutions categorized as Financial NGOs.

It is obvious that with these large numbers, the central bank needs a good number of staff with the requisite qualification and environment to perform the supervisory role of the Bank, failing which the crisis in the sector will not abate.

Lack of transparency

The central bank appears to enjoy working in opacity. It’s difficult for journalists to get important information from the Bank. The Bank’s regular Monetary Policy Committee press conference is a charade, a public relations stunt at which questions important to journalists don’t get answered. Only what the Bank wants the public to know are shared.

A few years ago, on the advice of the International Monetary Fund (IMF) a communication department was set up to handle information matters from the Bank. But even that department didn’t always have the information that journalists were looking for – effectively defeating the purpose for which it was set up. Curiously, only recently, that department has been shut and the old system that existed before it has been reverted to.

Media scrutiny

The Ghanaian media has a responsibility to put the Bank of Ghana on its toes. Journalists must scrutinize the central bank and demand accountability. Being cozy with the central bank isn’t in anyone’s interest.

The Bank has an unwritten contract to serve the bigger interest of Ghanaians and not any parochial political interest and it is possible for the media to get it to work in an efficient and effective way.

By Emmanuel K. Dogbevi