Ghana’s stuttering panic withdrawals - A simple approach

Crisis may be too strong a word for it, but Ghana’s current economic predicament is more than a little uncomfortable.

Only after exhibiting strong macroeconomic fundamentals to warrant a pat on the back by Standard & Poor's - with a sovereign credit rating to ‘B’ from ‘B-’, panic grips depositors as they troop to their respective financial institutions to withdraw part or all of their life savings.

Ama, a ‘petty’ trader at the Madina market in Accra explains, “…I had to go for my money from this bank [pointing to a microfinance office] because, my pastor announced at church there isn’t enough money to go around, so most church members are withdrawing their deposits from various financial establishments to be kept under their mattresses”.

What then stops Ama’s mentee, Konadu or Konadu’s brother Ato, or Ato’s girlfriend Aku Shika, or Aku Shika’s Boss Mr. Acheampong from doing same? The ripple or multiplier effect is catastrophic! Major bank runs, or economic depressions stem from ‘panic withdrawals’.

What is going on?

It started with UT and Capital Bank. Then followed BEIGE, Sovereign, Construction, UniBank and Royal Bank. All these banks have collapsed in a spate of 2 years. Largely attributed to undercapitalization, non-performing loans, poor credit risk management, lack of capacity, and corporate governance disorders.



Depositors have largely been patient until the recent Menzgold fiasco as well as financial distresses in many other credit institutions. The Bank of Ghana on its part has poorly refereed the game – only coming in to rescue or punish as an option of last resort. But the withdrawals have not stopped. Depositors continue to flock financial institutions with just one demand – to claim their cash deposits. What is the quick solution to this predicament?

Economic Shocks

Such a run of bad news looks like an argument for a policy rethink. If the economy stays weak, it may not be robust enough to withstand other shocks like the recent fuel price surge or exchange rate volatility. Ghana - a less diversified economy with a narrow range of production and export - is very vulnerable to robust consumer behaviour.

Largely, economic shocks, such as panic withdrawals are demand and supply-side driven. Demand-side shocks can affect unemployment rates, financial crises, unexpected tax increases, and economic downturn. A negative demand-side shock can also stimulate low investment spending. Supply-side shocks famously cause political turmoil or strikes and a steep rise in prices of basic commodities.

So why are Ghanaians not responding to S&P’s stable outlook on Ghana’s economy? Ironically, the rating agency’s particular interest is the ‘banking sector’s stability and monetary policy effectiveness’.

The anatomy of a panic

Like any financial crises the stock market crash of 1929 in America, culminated into a great depression that left consumers desperate, anxious and extremely worried about their savings in the bank.

Consumer spending and investment began to take a nosedive, which will further put pressure on unemployment and production. Anxious depositors lost confidence in the security of their bank leading them to withdraw their funds at once.



Banks typically hold only a fraction of depositors’ funds in cash at any one time and the rest in other portfolios, normally in other interest-bearing assets or investments, which may be illiquid. Illiquid assets as we know them, are not easily convertible into cash. Ostensibly, panic withdrawals do cause bank runs and with it, economic crisis.

Globally, panic withdrawals may arise as a result of insolvency, stemming from imprudent risk management practices or illiquidity, derived from imprudent asset and liability management.

The Ghana case, however, is different. Low economic activity, low public confidence, low consumer spending and inflation pressures are good reasons why depositors are yearning to withdraw their cash from financial institutions.

The Roosevelt Approach

After taking office during the great depression, Franklin D. Roosevelt declared a national “bank holiday”. All banks were closed until they were determined to be solvent. In his famous speech he intoned, “Your government does not intend that the history of the past few years shall be repeated. We do not want and will not have another epidemic of bank failures.” He continued, “…“it is safer to keep your money in a reopened bank than it is to keep it under the mattress.”

Roosevelts approach led to renewed public confidence. To put it lightly, consumer confidence is a big winner in maintaining economic stability. Equally important, if not more so, are tactics from the ‘top’ to instil some level of confidence into the economy. Consumer confidence and spending must shore up before the unthinkable occurs. Other strategies exit, but who is listening?

The author is an Assistant Professor of Economics and Entrepreneurship at Nobel International Business School – Africa’s Premier Doctoral School. Email: [email protected]