Revocation Of Licenses Of 23 Insolvent Savings And Loans Companies

THE REVOCATION OF THE LICENSES OF 23 INSOLVENT SAVINGS AND LOANS COMPANIES AND FINANCE HOUSE COMPANIES

The Bank of Ghana on 16th August 2019 revoked the licenses of 23 insolvent savings and loans companies and finance house companies in line with Section 123(1) of the Bank and Specialised Deposit Taking Institution Act, 2016 (Act 930), and section 7 of the Non-Bank Financial Institution Act, 2008 (Act 774). Section 123(1) of the bank and specialised deposit taking institution Act, 2016 (Act 930) requires the Bank of Ghana to revoke the license of a Bank or Specialised Deposit Taking Institution where the Bank of Ghana determines that the institution is insolvent. The Bank of Ghana contended that those institutions have no reasonable prospects of recovery and their continued existence poses severe risk to the stability of the financial system and to the interests of their depositors. That action by the Bank of Ghana is in line with the clean-up exercise that the bank under the current leadership commenced two years ago.

It began with clean-up of universal banks, continued with the clean-up of microfinance and microcredit institutions and has now reached savings and loans and finance houses. Although the bank contends it has completed the clean-up, analysts are ambivalent about the bank’s claims because of suspicion of similar problems at rural and community banks hence analysts and market watchers expect clean-up of rural and community banks. Clean-up exercises are done to ensure that only serious and sound financial institutions operate in the country and to a large extent remove charlatans from the system. The exercises are also undertaken to overhaul the entire financial system. The Bank of Ghana has come under serious scrutiny over the years. Analysts say if the Bank of Ghana had executed its mandate as prescribed, why the collapse of these institutions? Especially where placid Bank of Ghana staff are well remunerated to perform the exact task they are sleeping on.

Those savings and loans companies did not start having problems yesterday.
Indeed, some customers had their funds locked up in some of these institutions for a year or more. In jurisdictions where real prudential regulation function well, these episodes do not occur. The Bank of Ghana gave the following as the reasons for the collapse of the savings and loans companies: violation of the minimum regulatory capital requirement, excessive risk taking, the use of depositors funds to fund personal or related party business, misrepresentation of true financial position and failure to implement bank of Ghana on site examination recommendation.

The reasons and excuses given by Bank of Ghana is not different from the reasons the same Bank of Ghana gave on the collapse of 5 banks in Ghana in August 2018 especially excuses bordering on corporate governance. Prior to the collapse of UT Bank and Capital Bank, two major banks: Bank for Housing and Construction & Cooperative Bank had collapsed due to same problem of non-adherence to laid down rules, conflict of interest, excessive risk taking and corporate governance issues. One salient feature in all the scenarios of the collapsed financial institutions is that none of the quiescent directors or auditors who was complicit has been tried and convicted before by either the government nor the bank of Ghana.

In an era where people engage in financial malfeasance in blatant and cynical disregard for laid down procedure escape punishment, then the notoriety and penchant for recklessness in the financial sector will remain unabated because of the perceived endorsement of illegality in the banking sector. The collapse of the twenty-three (23) savings and loans companies and finance houses will no doubt increase unemployment rate in the country. Schools will reopen in September and the debacle will affect first day at school attendance as some parents may not be able to afford school fees. Although, customers have been assured that their funds will be repaid after necessary verification, it is obvious that the receiver understands time value of money, hence any undue delay in the repayment of funds to depositors will exacerbate their plight. What has happened will definitely affect savings culture of the category of people who do business with savings and loans companies and finance houses.

Currently, savings culture in Ghana is one of the lowest in the world, it will be difficult if not impossible to convince someone who has his funds locked up for a year to save his funds in another financial institution after all once bitten twice shy. One thing that researchers find difficult to comprehend is why tax payers must pay for extravagance of the owners of financial institution, quiescent regulator who is ideally expected to offer eclectic mix of financial safeguards to counter collapse, carelessness of auditors and accountants and credulity of the customer of the savings and loans company?

BY YAW OHEMENG KYEI, AN ECONOMIST & FINANCIAL ANALYST.