Financial sector cleanup: The good, bad and ugly

The Bank of Ghana recently announced the completion of the financial sector clean up after the last badge of the savings and loans who failed to meet new capital requirement had their licenses revoked and the said banks either consolidated, absorbed, downgraded or dissolved.

Those who feel hard done have shared their grievances, some have headed to court whereas others have accepted their fate.

This article seeks to look at the good, bad and ugly side of the entire exercise and also take a look at its overall impact and recommendation on how going forward, we can fix some of the problems created by the reform.

The good

One of the reasons given for embarking on the exercise was said to be due to failure by some of the Banks to abide by ethical banking standards as required by laws governing the sector. In view of this, the exercise is a positive one because enforcement of industry laws automatically puts industry player on their toes. We have all decided to be governed by the rule of law and nothing else.

Our inability to respect the laws as a nation throws us back into the animals’ kingdom where stupidity is the order of the day. I believe that institutions should lead the way by enforcing regulations governing their sector and hence my approval of this exercise in a way. In view of this, I can never be against the application of regulations because to every right-thinking member of society, that is the way to go.

At least so far, we have the lessons of the collapsed banks to learn from, we have the regulators expectations at the fore and most importantly, we know the repercussion of not working within the regulatory framework. At least, if nothing at all, we have bank owners who know that they are being watched unlike in the past when hands were dipped into depositors money to advance the personal interest of the owners.

The exercise will go a long way to wiping out most of the fraudulently operating financial institution that promise exorbitant interest rates to woe unsuspecting and greedy people to deposit their monies and in the end, operate a pyramid system that only favours a few and disappoints the majority. In short, the financial sector clean-up will go a long way to prevent people from becoming victims of schemes like: Menzgold, DKM, God is love and others.

Additionally, this will result in increased productivity because it discourages people from looking to make cheap money through expected non existing high yielding interest rate. When an investor believes that he or she can make over hundred percent per annum on his deposit then why should he or she think of going to physically work instead of his or her money to do so for them. This mind-set breeds laziness in a society and in the end productivity goes down leading to an overall drop in GDP. For example, what should motivate a cocoa farmer to use his or her money collected from the sale of his cocoa beans to expand his farm which will take him more than say five years to start reaping when he or she can easily deposit the same cash with these “ so called financial institution” and get over 100% a year?

These and many others lead to a drop in productivity because no business not many businesses have the potential to make profit to the tune of 100% on capital invested so any scheme that promises such an amount is likely to kill the interest of people to do legitimate businesses with their money. In view of this, operators of ponzi schemes take from people under the pretext of high yielding interest rate and when it crashes, do away with their money.

Elsewhere there are stocks and other securities which one can invest into but not with this high interest rate and so there is a greater desire to work with the money for a high return. People sold their taxis to invest at Menzgold, the driver of the car loses his job, and the mechanic does not get to repair.

It is important for us all to note that as a golden rule in operations management “YOU CAN NOT SEEK TO BETTER YOUR LIFE WHEN YOUR PRODUCTIVITY HASN’T GONE UP” Therefore let’s better our lives by increasing our productivity as individuals, people and above all a nation instead of indulging in lottery with the hope of magical improvement of our lives. .
This exercise will bring people to the consciousness of slow study and deeply rooted growth instead of seeking immediate wealth from get rich quick schemes overnight.

The bad

The banking sector reforms came with a lot of negatives, the bad of which this section is exploring:

The process is deemed as selective by many: Some industry players affected have accused the Bank of Ghana of targeting and hurting their business in an unfair manner. To these people, Unibank, Heritage Bank notably, they were victims of political vendetta due to the relationship of their owners to the opposition party. This sentiment is shared by many Ghana’s as well. This perception is a dangerous one because it can lead to a total politicisation of the application of the banking regulation in this country and we will end up coming back to the very problem we sort to correct.

That it could have been avoided: Unibank, Royal Bank, GN Bank have all lamented that if government had paid contractors and in turn the contractors paid loans owed the defunct banks, they would have survived because it was those debts were very important part of the reasons they had liquidity problems that eventually led to the revocation of their license. We always say that governance is a continuous process and yet when a new government comes to power, there is the reluctance to honour contractual obligation entered into by the previous administration. Delay in paying contractors has for so long become political ammunition by every new government in this country that is used against seeming opposition friendly contractors. The one institution that suffers is the banking sector when this is done because contractors work with loans from the bank

No one has been sentenced: owners and key decision maker who contributed to the collapse of those banks and in some cases even misusing money meant to bail them out of the mess are walking freely and not facing prosecution. I feel this exercise could end in vanity going forward if those operatives and founders of these so financial malpractices are walking about freely.

If I break a law and the effect is financial loss to the state and loss of jobs for thousands of people and still get the luxury of not being dealt with to serve as deterrent to others, then whatever action is taken will not be able to leave the kind of mark that will ensure that it is not repeated.

Crimes are punished not just to hurt the one in wrong but to send a message to the larger society to refrain from same. This banking clean-up should ordinarily go hand in hand with prosecution, especially those who diverted depositors’ funds for their personal gain. So far, there is no attempts to cease their personal assets to defray the cost even in part. People set up banks so that they can rob it, tax payers’ money should not just be used to bail such people out and let them walk free men.

We have many Ghanaians in jail for stealing as little as 10 Ghana Cedis worth of farm produce, so what happened to these millions gone down the drain? Gradually, it is becoming apparent that if you want to walk a free man, make sure you steal from the nation, this is the message being sent to the youth.
The rule is that “JUSTICE MUST NOT ONLY BE DONE BUT MUST BE SEEN TO BE DONE” If this government is going for justice as he claim, then it must be seen clearly and open else in the final analysis it will turn to create more harm than good thereby rendering the entire exercise very bad.

3. One other bad side of this exercise is the fact that, most of those affected were indigenous Ghanaian businesses.

The question I ask myself therefore is, WHY SHOULD I MAKE A LAW THAT WILL KILL ME AND MY FAMILY WHEN I HAVE THE CHANCE TO AMEND FOR MY OWN GOOD? Well I believe same question is going through a lot of people’s mind and therefore to some extent I feel those laws could be one of those bad ones which should be looked at again. I will suggest how to go about this to get a stronger local participation in the financial sector.

The ugly

Foreigner in total Control of Our Banking Sector: after the banking sector revolution, as I prefer to call it, we ceded even more control of the industry to foreign owned banks with the few surviving indigenous banks. The Banking sector is the heart of the entire financial sector, once local banks gets weakened and the initiative handed over to foreigners, the nation’s economy suffers. Credit repatriation is going to be a permanent issue until we put in place measures to bring up locals to participate in a significant way.

Job loses: despite the absence of reliable statistics on how many people have lost their jobs, it is an open secret that the revocation of licenses of 16 banks and countless microfinance companies, many homes have troubled breadwinners. This is the worst part of whole exercise, the fact that people have lost their means of livelihood. In a country with massive unemployment like ours, finding a new job is a herculean task dreaded by anyone working.

But this is the reality of the financial sector, even some of the banks that were not affected laid off workers to cut down on their wage bill.
I know many who could not stand the shocks have passed away, others in sick bed, and other managing several other pressures which have come about as a result of this exercise.

My heart goes to such people even as I encourage them to not give up and discover other legitimate ways of survival. It is in such times that many people think outside the box and come out with a breakthrough idea that leads them into prosperity. Necessity is indeed the mother of all invention.

Recommendation
As I said in my 2018 review of this government, a number of interventions need to be made to bring back more local people into the banking sector without exposing them to direct competition with international banks. Here, I suggest we create categories of banks based on capacity. We should have nation banks and regional banks. The regional banks will be the preserve of Ghanaians whereas the national banks will be open to both local and financial players as long as they can meet the requirement. To keep these banks strong, we can develop a policy that ensures that all government workers are paid through region banks.

Here, there will be different capital requirement for banks operating nationally and those operating at the regional level. A regional bank in the Easter region cannot open a branch in the Western Region, such banks will deal with certain category of depositors, give loans to a maximum amount considerably lower than what nation banks give.

The other option is to grades banks and allot minimum capital requirement based on their ratings. All banks are not the same, all depositors are not the same. We can have Grade A, B, C banks and have a clear cut definition of who saves where, how much can be withdrawn in which category of bank and maximum amount accessible by loan for each category. Two years ago when I decided to open an account with Bank of America, I was asked to get a pass from a smaller bank to indicate that I have risen through the banking rank. This is one way we can protect our local players in the banking sector.

Also, going forward, we should stop increasing things buy 50, 60 to over 100% overnight, the manner of the capital adjustment was unwise and placed unnecessary pressure on banks. Imagine operating a business with Thousand Two Hundred Ghana Cedis and suddenly required to raise a capital of Four Thousand Ghana Cedis or lose your business, it doesn’t make sense. This is what the recapitalisation is all about.

Conclusiom

Whether we like it all not, the banking reforms has taken place for good reasons with bad and ugly implications, what we need now is to find ways to deal with the impact on people and the nation so that it has a far reaching positive impact than negative.

How do we create the needed opportunities to give a new lease of life to those who have lost their jobs? How do we ensure that our economy does not suffer with credit repatriation in view of the influence of foreigners in the sector?

We cannot sit ideal and hope that everything fixes itself, we need to plan for the possible outcome of the exercise so that the billions spent to clean up the system do not go waste.

As we find answers though, one thing we cannot forget is that for as long as the founders of these collapsed businesses live and dine with us without any form of punishment to deter others from repeating same, it will end up being and an exercise in futility because they will reorganize and appear in different clothes especially when this government is no more.