The erstwhile Mahama administration superintended a banking system that was cancer-ridden, Vice-President Dr Mahamudu Bawumia has said at the government’s maiden town hall meeting for this year in Kumasi, the Ashanti Regional capital, adding that the 2020 flag bearer of the biggest party, the National Democratic Congress (NDC), lacked the courage to confront the cancer at the heart of the banking system when he was the President from 2013 to 2016.
“Indeed, the current central bank leadership inherited what was pretty much like a body with a cancer in the toe”, Dr Bawumia told his audience on Tuesday, 11 February 2020, explaining that the Akufo-Addo government’s intervention to clean up the sector was timely to avert the worst.
“If you don’t give up that toe in time to end the rot, you’ll soon move from one with a rotten toe to one without a leg because the rot will eventually spread to your hip and then you are going to have to lose the entire leg”, Dr Bawumia illustrated.
The licences of nine local banks were revoked within two years under the Akufo-Addo government as part of the clean-up exercise. Also, 347 microfinance companies, 23 savings & loans firms and finance houses, as well as 53 fund managers, had their licences revoked, too by the central bank and the Securities and Exchange Commission (SEC).
Justifying the intervention, Dr Bawumia argued that: “The swift and decisive action taken by the new management team at the Bank of Ghana provided relief for the financial system as a whole through the funds provided by the government for deposit payouts. Ladies and gentlemen, let us remember that the failures of these financial institutions which we witnessed were a direct result of a system of poor licensing, nonexistent capital, weak corporate governance, related party transactions and so on and this has actually hurt so many people – depositors and employees alike”.
In his view, “The NDC government and the previous management of the Bank of Ghana had ample time to address the impending failures; they were aware of the problems in 2015, in the case of banks, and as far back as 2012 in the case of savings & loans and microfinance companies.
“In fact, President Mahama, in the state of the nation address in 2016, stated as follows; and I want to quote the former President. He said: ‘Mr Speaker, over the past five years, there has been a proliferation of microfinance companies. These companies come under the direct supervision of the Bank of Ghana. Unfortunately, lack of effective supervision has resulted in many cases in which microfinance companies licensed by Bank of Ghana have breached the rules and created supposed pyramid schemes that have eventually come crashing down. One such case is DKM. DKM, with super high interest rates between 50 and 55 per cent promise is believed to have caused a loss to its clients of GHS77 million. Many depositors have lost their livelihoods’.
“So, the government were aware of the problem and they had been aware of this problem for over five years, for savings and loans and since 2015 for the banks but they had no courage to deal with the cancer at the heart of the banking system. They had no courage to deal with it”, Dr Bawumia noted.
Dr Bawumia wondered why the Mahama government could not see what he saw even when the New Patriotic Party (NPP) was in opposition at the time.
“Even in opposition, I alerted the country that on the basis of available data, eight banks were likely to collapse. I’m sure many of you remembered, I, as an opposition member, said: ‘Looking at the data, eight banks were going to collapse, you need to do something about it’, but they did nothing, they refused to act. Thanks to the Bank of Ghana’s cleanup exercise and the government’s decision to step in to provide financial support to ensure the orderly exit of the failed institutions, over a million depositors have had access to their deposits already and over 7,000 jobs have been saved as a result of employees who have been taken on by GCB Bank or Consolidated Bank Ghana Limited or the Receivers.
“Employees, whose salary benefits had been unpaid by the defunct institutions have been paid or are being paid by the Receivers. Can you imagine what would have happened in this country if 4.6 million depositors had lost their deposits? Can you imagine what would have happened in this country if we had allowed this collapse of 4.6 million depositors to lose their deposits and over 10,000 individuals to have lost their jobs.
“The benefits of the banking sector cleanup are evident for all to see. We now have a stronger and more resilient banking sector than ever before and the deposits in the banking system have increased significantly as customers’ confidence in the system has rebounded”, he noted.
The Vice-President also accused the NDC of double standards vis-à-vis the cleanup of the financial sector, saying: “We should never forget that under the NDC, we had the messy liquidations of the BCCI in 1999, and the closure and liquidation by the Bank of Ghana in the year 2000 of the Co-operative Bank and Bank for Housing and Construction, the collapse of infamous DKM, and the proliferation of unlicensed financial services such as Pyram and R-5, God is Love fan club, Menzgold, and others that took advantage of their customers.
“With this background, I find the NDC’s new found care for indigenous firms quite baffling, given the number of indigenous firms collapsed under 4 years of dumsor under their government. Why didn’t their government bail them out? Where were the specific policies to support them? Do they know how many jobs were lost? What did they do about that if they cared so much about jobs? What about the jobs of microfinance companies like DKM that collapsed under their watch? Did those people not matter?” he wondered.
“Worse still”, Dr Bawumia said, “They are telling the people of Ghana that they would have kept indigenous institutions alive even after they found that they obtained their licenses based on false and non-existent capital, or after it became obvious that they had siphoned off depositors’ funds and the liquidity support that the Bank of Ghana had provided those institutions? Is their idea of an indigenous financial sector, one that is characterised by fraud and unlawful activities? If you have a business and employ someone and find out that he brought a fake school certificate and is also stealing your money to build a house won’t you sack him? Will you keep him because he is from your hometown?”
According to him, the banking sector is now more robust and sturdier with even stronger indigenous participants. “It is important to note that all the nine indigenous banks that were closed were to a large extent taken over by indigenous Ghanaian banks – GCB and CBG – ensuring stronger Ghanaian ownership in the banking sector.
“Also, the Ghana Amalgamated Trust with 100% Government of Ghana ownership, has successfully invested in 4 indigenous banks that were unable to meet the new capital requirement. It is noteworthy that no bank was closed only on account of not meeting the new minimum requirement of GHS 400 million”, he noted.
He said the government has already spent over GHS13 billion paying depositors of banks and other financial institutions, and the “President has given the assurance and I will like to repeat that no depositor of a bank, savings and loan or microfinance company would lose even a pesewa of their deposits. All depositors of these institutions will receive a 100% refund of their deposits since this was no fault of their own. Government has asked the receiver (working with the Bank of Ghana) to expedite the validation and payment of depositors so that all depositors will receive their monies after validation”.
“I will also like to add that this refund will also extend to customers of DKM who have not as yet received the full refund of their deposits. We are, therefore, cleaning up the mess the NDC created in the financial sector. The NDC was unable to do it. Given their management of the economy, they could not find money for teacher or nursing training allowances or free SHS. Where would they have found the GHS13 billion to settle bank depositors? Left to the NDC, our banking system would have collapsed by now”