The Chairman of Parliament’s Finance Committee, Dr. Mark Assibey-Yeboah, has attributed the challenges facing some indigenous financial institutions to bad corporate governance practices.
Dr. Assibey-Yeboah said the appointment of blood relations and friends into executive positions at the expense of competence and the establishment of business lines without the required capacity are some of the key reasons why some local banks are struggling or have collapsed completely.
[contextly_sidebar id=”wuGOjVSW6UcVtg1hGNQZkT8ZdwwlXEv9″]”These are corporate management issues. It is for my father so I am the Managing Director and I am loaning out [Money]. They venture into things. DKM had DKM airport or something. They had cement companies. If you go into a lot of these, [you see that] they had a lot of business that they are not well vexed in,” he told the media in Parliament on Wednesday.
The MP was commenting on the recent insolvency of uniBank, an indigenous bank.
uniBank was found to have persistently maintained a negative capital adequacy ratio below zero making it technically insolvent. This contravened the 10% minimum capital adequacy ratio required.
uniBank also suffered liquidity shortfalls and consistently breached its cash reserve requirement.
As a result, uniBank relied extensively on liquidity support of over GHS 2.2 billion from the Bank of Ghana over the past two years to meet its recurring liabilities.
uniBank’s insolvency followed the total collapse of two other indigenous banks, UT Bank and Capital Bank in August 2017.
UT and Capital Banks were unable to turn around their negative capital adequacy position, which necessitated a Purchase and Assumption agreement allowing GCB Bank to take over all their deposit liabilities and selected assets.
BoG intervention timely
Dr. Assibey-Yeboah, who is a customer of uniBank, said the Bank of Ghana’s (BoG) intervention is apt.
“It is the proper thing because if you are not careful and the bank goes under water, it is liquidated then I would have also lost my deposits at uniBank so what the Bank of Ghana did was the right thing to do.”
The BoG announced KPMG Ghana as uniBank’s administrator when it announced it had taken over the management of the bank. The central bank took the decision to save uniBank from total collapse.
Dr. Assibey-Yeboah said KPMG Ghana was well vexed to save the bank from collapsing within its six-month timeline.
“The administrator [KPMG] will go into the books and go after all the non-performing loans. So in six months, we should see a revival.”
Ailing Microfinance sector
The BoG has also said the problems in the financial sector are also reflected in the Micro Finance sub-sector.
The BoG Governor in a statement noted that the distress in this sub-sector has been characterized by “severely impaired capital; inability to meet regulatory capital adequacy requirement; generally low asset quality; and liquidity crises.”
“These have culminated in threats to depositors’ funds thus eroding public confidence and undermining efforts to promote financial inclusion,” he added.
Using figures to highlight the precarious situation, he said out of the total number of 566 licensed Micro Finance Institutions in 2018, 211 are active but distressed or have folded up.
Also, out of the total number of 141 rural and community banks, 37 are active but distressed or have folded up.
In total, it is estimated that 272 out of the 707 institutions in the sub-sector, representing 38.5%, are at risk.
“This indicates that approximately GHȼ740.5 million is owed to an estimated 705,396 depositors of the distressed or folded up MFIs and RCBs. In terms of significance, the deposits under distress form 8.81% and 52.49% of industry total deposits of RCBs and MFIs respectively.”
By: Duke Mensah Opoku & Delali Adogla-Bessa/citifmonline.com/Ghana