Ghana’s banking bust

Ghana is slowly emerging from its worst banking crisis ever. Several times this year depositors massed in the branches of insolvent banks wanting to take their cash, despite assurances from central bank governor Ernest Addison that their money was safe. Some fixed-term depositors even approached the newly formed Consolidated Bank to redeem their investments, unsuccessfully.

Panic withdrawals also hit local banks that had not been declared insolvent, such as Premium Bank, GN Bank and Heritage Bank, as customers speculated the banks would soon be closed down. So serious was the situation that the founder of GN Bank, former minister of state and flagbearer of the Progressive People’s Party Paa Kwesi Nduom, went on public campaigns telling people to stop the panic withdrawals.

Ghana’s central bank closed down seven banks in the 12 months leading up to August 2018 due to rising non-performing loans and the lenders’ inability to meet capital adequacy requirements. It ­revoked the licences of UT Bank and Capital Bank in August 2017, after providing a combined ¢1.5bn ($310m) in liquidity support. A year later, it followed with Beige Bank, Construction Bank, Sovereign Bank, uniBank and Royal Bank. In all cases, the Bank of Ghana noted negligence on corporate governance procedures and/or disregard for provisions of the banking law.

Former bank directors have been assisting the Economic and Organised Crimes Office in investigations to unravel the causes of the bank failures. The founder of uniBank, former finance minister Kwabena Duffuor, is challenging the lender’s closure in court.

While several small banks have recently collapsed, the majority of the sector has already met new minimum capital requirements designed to strengthen the industry. Those banks now have more firepower to lend to big and small companies in the sectors that will be driving the economy forward.

Job losses

To protect depositors, the Bank of Ghana named GCB Bank and the newly created Consolidated Bank Ghana to take over the liabilities and selected assets of the defunct banks. The government has stepped in, but its means are limited, as it is coming to the end of a programme with the International Monetary Fund to help it tame the country’s debt and budget deficit. The government overlooked its already strained budgetary resources and issued ¢2.2bn in bonds to GCB and ¢5.7bn to Consolidated Bank to meet the gap between liabilities and assets.

Since taking over, GCB has sacked some 450 members of staff of the failed entities, with plans to cut another 250 workers. Consolidated Bank Ghana has laid off 700 staff as part of a plan to axe 2,000 workers from the defunct banks. These numbers compare with a total 1,400 workers who lost their jobs when the Bank for Housing and Construction and Ghana Cooperative Bank collapsed in 2000, according to a report by PwC. The assets controlled by the troubled banks are worth $2.1bn, compared with $14m during the year 2000 crisis.

In September 2017, the central bank it increased the minimum capital requirement from ¢120m to ¢400m, giving banks up to the end of 2018 to comply. Finance minister Ken Ofori-Atta told reporters: “It is strong individual institutions that make a strong banking sector.” He added: “From next year we can expect to see institutions that are very well-capitalised, lower non-performing loans and higher credit growth to the private sector.”

Nineteen out of 30 banks already met the new minimum capital requirement, Addison said. On 3 October he added: “Our banking system is becoming stronger. […] The idea is to position the sector as a major growth driver to support an inclusive, broad-based economy.”

Analysts say the drive to improve bank performance is paying off. Edem Harrison, an economist at Frontline Capital Advisors in Accra, says: “The adoption of Basel II risk-based supervision framework by the regulator this year is going to strengthen banks’ risk-­management system and enable them to curb loan losses.” He predicts the industry’s capital adequacy ratio could increase to 23% by the end of 2019, up from 19.1% in August, and that credit growth will likely accelerate to at least 15% from an average of 3.4% in the first eight months of the year.