The banking sector cleanup that was undertaken by the government of Ghana did not target any individuals, Finance Minister-designate Ken Ofori-Atta has said.

According to him, it was done without malice and in good faith.

Some nine local banks, 23 savings & loans companies, 347 microfinance institutions, 39 finance houses and 53 fund management companies went under as a result of the cleanup exercise.

An asset quality review carried out by the BoG in 2015 and 2016 revealed severe challenges with solvency, liquidity and asset quality in Ghana’s banking industry, with some banks showing significant under-provisioning and capital shortfalls.

When the current management of the BoG took office in early 2017, it faced a financial sector it describes as being in a “considerable state of distress”.

In response, the authority moved to strengthen the sector in September 2017 with a new minimum capital requirement, in which all universal banks were required to increase their minimum paid-up capital to GHS400 million ($77.5m) by December 31, 2018.

The result of this regulatory intervention was a number of market exits and mergers, leading to a significantly altered banking landscape.

By 2019, the licences of nine banks had been removed by the BoG on the grounds of insolvency.

The central bank also gave its approval for three mergers: First Atlantic Merchant Bank with Energy Commercial Bank; Omni Bank with Sahel Sahara Bank; and First National Bank with GHL Bank.

Some 16 banks had met the new capital requirement, mainly by securing capital injections or through the capitalisation of surplus income.

Five banks secured cash injections from the Ghana Amalgamated Trust (GAT), a group of private pension funds.

The government is also using resources from GAT to recapitalise two state-owned banks, the Agricultural Development Bank and the National Investment Bank.

The latter is being restructured through governance and management reforms, and its business model refocused to support the government’s industrialisation policies.

Both institutions, therefore, are expected to play important roles in the realisation of the government’s economic strategy.

The final outcome of the BoG’s recapitalisation process is an industry made up of a smaller number of well-capitalised banks.

“Following the exercise, all the key financial soundness indicators in terms of solvency, liquidity, efficiency and asset quality have improved. The provision of capital buffers by banks under the Basel II and Basel III framework has also ensured that banks are more resilient to shocks,” Dr Ernest Addison, governor of the BoG, told OBG.

“Other supervisory and regulatory directives on corporate governance, financial holding companies and voluntary winding up of financial institutions, among others, will further enhance the stability and soundness of the sector.”

A similar clean-up process, which has already resulted in hundreds of licence withdrawals, has also been applied to the microfinance and non-banking financial institutions sector.

Ghana started 2017 with 36 banks, but by 2019, this number had fallen to 23.

The BoG’s clean-up of the sector was the primary cause of the market exits, although the 2018 departure of the Bank of Baroda Ghana, a wholly-owned subsidiary of the Bank of Baroda India, was the result of the Indian government’s decision to rationalise the overseas operations of Indian public sector banks.
Another change that has emerged since the BoG’s clean-up operation is that the second-largest branch network in the country is now operated by the Consolidated Bank of Ghana, a government-owned institution formed in 2018 to control the assets and liabilities of five of the nine distressed banks: Construction Bank, Beige Bank, Royal Bank, uniBank and Sovereign Bank.

The other banks that went down include Heritage Bank, UT Bank, Capital Bank, and Premium Bank.

During his vetting by Parliament’s Appointments Committee, Mr Ofori-Atta, who has been appointed by President to serve in the same portfolio he held in the first Akufo-Addo administration, said the “APRs were done prior to the time we came and even as the former President [Mr John Mahama] articulated the problems so clearly [in his 2016 State of the Nation Address], there was still the issue of will and courage to move forward and that is what President Akufo-Addo came to do with the new management of the Bank of Ghana.”

“So, we would really have appreciated the other side of the aisle clearly being on our side in what we did and also to be clear that there wasn’t a policy that was looking to target individuals. The rot was known. Cleaning the stables had to be done and we took up the challenge for that,” he said.

Asked if the whole exercise was done in good faith and without any ill motive, he responded: “Mr Chairman, completely, and we have seen the results have been good so far.”