A financial analyst Dr Micheal Smith has indicated that the banking sector reforms undertaken by government and the Bank of Ghana strengthened the local banks and made them more resilient to shocks.
Dr. Smith was responding to a statement by a private legal practitioner and Communicator of the National Democratic Congress (NDC) Godwin Edudzi Tameklo who has said on the Big Issue on TV3 that the government should be charged for causing financial loss to the state for spending 25billion on the cleanup.
Dr Smith mentioned that it was unnecessary for the government to spend GHS25 billion to reform the sector.
“I think clearly, Edudzi doesn’t understand the essence of the reforms. I can tell you that, most of the local banks breached several banking regulations.They had governance issues. You had a situation where loans were given to family and friends without proper documentation. Depositors’ funds were diverted to build businesses of shareholders. Some depositors were not getting back their funds from some of the financial institutions.
“It is better to have fewer local banks with strong financial capacity than having many weak local banks unable to drive economic development. In fact the financial system at the time, was on the brink of total collapse. Poor business practices and weak capital positions of the banks and financial institutions were visibly seen. The liabilities of some of the local banks were more than their assets.
“You also had a situation where some of the local banks were just surviving on liquidity support from the Bank of Ghana and putting depositors’ funds at risk. The Government rather intervened to ensure that customers do not lose their money. I think Edudzi is unaware of the Government’s support to the local Banks.”
After the clean-up, the Government created the Ghana Amalgamated Trust (GAT) to guarantee capital injection for five local banks.
This in the view of Dr Smith, demonstrated the government’s commitment in ensuring that the local banks are able to support economic development.
“The robustness of the banking sector is due to the financial sector reforms. The central bank indicated that the reason why most banks were able to withstand increased withdrawals and met depositors’ demand for cash in the lockdown period, was due to the fact that banks were solvent and well capitalised.
“I will say that the resilience shown by the banking sector is due to the comprehensive financial sector reforms that took place before the Coronavirus pandemic. You can imagine what would have happened if the banking sector reforms wasn’t done. We would have woken up one day to see a collapse of the Ghanaian economy. The measures taken safeguarded the investments of 4.6 million depositors. There is confidence now in the sector. The exercise was crucial for stability and confidence in the financial sector”. Dr Smith added.
“The decision to undertake the reforms in the financial sector was mooted by the IMF.Thus, the clean-up was an IMF Conditionality. You remember the asset quality review which was executed during the NDC era. The asset quality review gave a sense of the state of the banks. Former Finance Minister Seth Tekper and Governors appointed by President Mahama are aware of the malfeasance which was discovered after the asset quality review of the Banks.
“During the NDC era, the IMF published several reports warning the Bank of Ghana to take some corrective measures within the banking sector, but the NDC government failed to clean up the sector. I think we should stop politicising the benefits of the banking sector reforms. We are all monitoring the news on the court proceedings. Some shareholders diverted depositors funds to their benefit.”