The Bank of Ghana has recently instructed banks in Ghana not to pay dividends to shareholders for the 2019 and 2020 financial years because of the coronavirus (COVID-19) pandemic and its effects.
Banks in Ghana would have, normally, declared and paid dividends, as approved by their shareholders at the Annual General Meetings (AGMs), around this time of the year in Ghana, but that is not to be because of such instructions from the central bank, given reasons for such a decision as how the banks would be negatively impacted if they (the banks) should dole out such monies. But has the central bank (BoG) thought of the implications and effects this decision would have on beneficiaries of the dividends?
Implications and Effects
Individual and corporate shareholders will not have any income through their investments in these banks. But it must be noted that majority of the individual shareholders are pensioners who have invested their hard-earned monies in companies (banks) through the Ghana Stock Exchange.
Corporate entities, including Mutual Funds and Unit Trusts, SSNIT, and other asset management companies, including Pension Funds, are also to lose their investment incomes, which will negatively impact their returns to investors thereby making them unpopular, a situation which began even before the emergence of the COVID-19.
The Ghana Stock Exchange (GSE) will also see its trading activities going down since the most vibrant and active listed companies on the exchange are the banks. This situation can even lead to the pulling out of most players on the exchange.
It may seem that the banks themselves collaborated with the BoG in this decision-making as they would also want to avoid, for any reason, paying these monies to shareholders as they normally wished, but most times cannot avoid. Meanwhile in denying the shareholders their due, members of the Board of Directors and management (of these companies) have already taken their “part of the cake” in terms of fees and allowances for members of BoDs, and salaries and allowances for the management.
This directive for the BoG has come at the wrong time and definitely will have various negative effects on the investing public.
In the light of the above stated reasons it will be better for the BoG to reconsider its directive or decision to the banks in order for the shareholders of these companies (banks) have their due, and to cushion them financially in a time like this.
The BoG’s directive would definitely create a vicious circle within the economy and make investments in the country a no-go area taking into account how so many citizens have lost their investments to the collapsed financial institutions post the financial sector clean-up.
Hopefuly, the BoG would listen this time round and take a more humane approach in this matter.
By Sam Bediako-Asante| Financial analyst and the CEO of Sambed Consult|