Member of Parliament for the Bolgatanga Central constituency, Isaac Adongo, who is also the Ranking Member on Parliament’s Finance Committee, has laid out ways the liquidity and recapitalization challenges of the National Investment Bank (NIB) can be tackled to comply with the Extended IMF Credit Facility program for a strong financial sector.
It would be recalled that between 2017 and 2018, the government of Ghana, acting through the bank of Ghana, embarked on a banking and financial clean up exercise; which has resulted in the revocation of licenses of many universal banks and the collapse of a host of deposit-taking financial institutions due to the chosen method of the governor and the Ministry of Finance..
At a press conference in Parliament House on Thursday, Mr. Adongo noted that the government relied on regulatory provisions of the banks and specialized deposit-taking Act, 2016 (Act 930) which became operational in April 2017. He described the revocation method as chaotic.
“The revocation methods used were chaotic and were characterized by high-handedness, fraught with predatory regulator actions, political biases and were riddled with technical flaws.
“The authorities preferred to use overly expensive options rather than the obviously known least cost approaches and preservation regulation methods that proved successful in jurisdictions such as China, Canada, Europe, America and elsewhere.”
He stated that, the panic withdrawals resulting from the run on financial institutions left most of them with recapitalization proceeds inadequate to strengthen these banks.
“It was, therefore, not surprising that the financial sector, after enduring the incompetent policies of the new government, left gaping holes and fragilities in the banking sector.
“By the end of the exercise, a whopping Gh25 billion had been spent to collapse over 400 financial institutions, leaving in its wake the killing of confidence in the financial sector with a collapse of several of its layers and value chain institutions such as savings and loans companies, finance houses, rural and community banks and micro- finance institutions.”
According to Mr. Adongo, “The essence of the failed banking sector clean-up was to emancipate the indigenous banks and financial institutions with a huge dose of regulatory forbearance to keep several non-compliant financial institutions afloat, especially NIB owned by Government that continued to operate from a very deep- hole.”
He said every viable and constructive alternative proposal by well-meaning Ghanaians aimed at resolving the problems of NIB to retain and revive largely systemic banks was bluntly ignored. Thus, he is of the view that those alternative proposals will bring good to Ghana.
According to the perspective of the minority group in parliament, the sale of NIB’s 24% shares in Nestle Ghana acquired at Ghc50 million a long time ago, that were given a conservative value of Ghc 500 Million in 2018 would have generated a risk-free cash of Ghc 500 Million to NIB and provided a realized capital gain ofGhc450 million for recapitalization.
However, “that was either ignored or lost on Hon. Ken Ofori Atta, who rather opted to take the shares in Nestle and swap it with a Ghc 500 million government bond plus a further Ghc 800 Million government debt as deposit for shares.”
Again, the NDC is of the view that following these guidelines would have been the best option.
“a. Government debts in bonds totaling Ghc1.3 billion should be converted to equity to immediately increase the capital of NIB by that amount.
- Following that, NIB’s 24% shares in Nestle Ghana, which were swapped for the Ghc 500 million, should be returned to NIB since value in the new NIB shares issuance would be a consideration for the underlying debts.
- The Nestle Shares should be valued and sold to free up the cash equivalent to increase the liquidity of NIB.
- The sale of the NIB shares in Nestle to be returned would lead to a realized capital gain of about 450 Million. Coupled with the debt Swap of Ghc1.3 billion, the two actions will inject a realized equity of Ghc1.750 billion and cash increases of about Ghc 500 million.