A letter from Office of the President, dated 25th February, 2019, reveals a request for parliamentary approval of Ghc 2Billion sovereign guarantee and a waiver of statutory payments to be made by GAT to the Consolidated Fund.

By Ghana's laws, for an institution of the kind to merit and apply for such an approval, the Ghana Amalgamated Trust (GAT) must be created according to Article 192 of the 1992 Constitution, which states that "a Public Corporation shall not be established except by an Act of Parliament".

This requirement was followed in the establishment of the Ghana Infrastructure Investment Fund and many other Public Corporations. For this reason, GAT cannot be an exception.

However, public records, as at today, indicate that GAT, an institution carrying out as a public corporation, is not known to Ghana's Parliament.

The requirements for approval by parliament in connection with sovereign guarantees, whether full or partial, is such that there MUST be PRIOR parliamentary approval. Public records show that GAT was established and announced at the end of December, 2018 to help capitalize some local banks.

Again, GAT has already announced entry into the capital market to issue two tranches of bonds without the required and approved sovereign guarantee. Let us also note that any such guarantee must be PRIOR to any attempt to issue bond.

Section 66(4)&(5) of the Public Financial Management Act is very clear on this requirement. Section 56(1) of the same Act and Article 181 of the 1992 Constitution also require PRIOR approval of all public borrowings by parliament.

We must also know that compliance with relevant laws reduces political risk associated with bond issuance by public institutions, e.g. GAT. Therefore, it is very strange that GAT has engaged in many violations of Ghana's laws in its creation, yet has attempted to issue bond.

The structure of GAT, unknown to Parliament, is to take control over the affected local banks with the power to merge and sell its investment at any time until the 5th year.

The GAT model is problematic because it works as a compulsory acquisition of private property, which is prohibited by Article 20 of the 1992 Constitution. This working of GAT does not encourage private investment in the financial services sector as the risk of nationalization seems imminent. So far, there are three nationalizations under the so called banking clean up:

1. Two banks merged with state bank - GCB

2. Five banks consolidated into CBG

3. Takeover through GAT model

Bearing in mind that the controlling interest of GAT in the affected local banks makes GAT a financial holding company, which under section 44(4) & (5) of Act 930 cannot capitalize with borrowed funds. Also, section 9(d) of Act 930 prohibits banks from capitalizing by borrowed funds.

Ahead of the banking sector reform lies serious legal actions relating to GAT with possible reversals of ownership, compensation and judgment debts as well as public revulsion. The GAT model does not give clarity regarding stability of ownership of the eventual private owners of these banks. This, obviously, is not good for the financial sector.

There is the need to seriously revise the current GAT model. If Bank of Ghana could allow the violation of section 9(d) and section 44(4) & (5) of Act 930, these local banks could have equally used the period from September 2017 to December 31st, 2018 to borrow to capitalize.

The way parliament considers GAT and the sovereign guarantee process will define how the banking sector will look like in the near future.