Dr. Asiama denies any wrongdoing in banking crisis

Former Deputy Governor of the Bank of Ghana (BoG), Dr Johnson Asiama has denied any wrongdoing in emergency liquidity support extended to uniBank.

According to him, the liquidity support granted to uniBank was meant to help address the persistent liquidity problems facing the bank.
“We only acted to prevent a possible larger crisis that would have impacted negatively on the entire banking industry,” he indicated in a letter from his lawyers to the Special Investigation Team (SIT) probing the banking crisis
Dr Asiama, who, his lawyers said, was out of town, has expressed his willingness to meet the police investigators, but only after the meeting is rescheduled.
He explained that in early 2016, Bank of Ghana (BoG) was informed that uniBank was experiencing persistent liquidity crisis, and so was borrowing heavily daily on the interbank market.
uniBank, he said, informed the regulator that they were experiencing large withdrawals from key institutions such as Ghana Cocoa Board (COCOBOD), Volta River Authority (VRA), Ecobank Development Corporation (EDC), and Databank.
According to him, COCOBOD was withdrawing over GH₵400 million while it also had to finance the outstanding VRA facility of about $100 million.
He said that the central bank was made to believe that uniBank had a number of government and government-related receivables totalling over GH₵1.3 billion on account of its large exposure to the energy and construction sectors, which was confirmed in an Assets Quality Review.
Dr Asiama, in the letter from his lawyers, said BoG was optimistic because the Energy Sector Levy Act (ESLA) payments to banks had then started,  hence it was sure that the situation would improve by end 2016.
“Total liquidity support from the Bank of Ghana, for example, increased steadily from GH₵200 million at the end of 2015 to over GH₵2.2 billion by the end of 2017.
“Their total exposure to these two sectors was reported to be more than GH₵1.3 billion, and hence, the delay in payment was having a severe impact on the bank.
“uniBank had also then secured approval and had started the roadshow for a 10-year Medium-Term Note. EDC (Investment wing of ECOBANK) was underwriting this deal, which was expected to yield about GH₵650 million.
“uniBank told us they wanted to use the proceeds to pay off their short-term liabilities (especially the BoG ELA) because of the high interest rates,” it added.
According to him, around June 2016, BoG noticed that uniBank’s primary reserves ratio had suddenly declined sharply compared to the required prudential limit of 9%.
This situation continued for a couple of weeks, and the head of Banking Supervision Department (BSD) was instructed to monitor the liquidity position, and the BSD head attributed it to heavy interbank withdrawals, he stated.
Also, he said the Assets Quality Review (AQR) exercise did not suggest that uniBank was irredeemably insolvent, and hence BoG deemed it a typical liquidity problem
Dr Asiama said he tasked the head of BSD at a point to check whether the earlier liquidity support was not being mis-applied, but nothing was reported since the BSD only attributed it to early redemptions and heavy interbank withdrawals.
He stated that uniBank subsequently discussed a request for additional ELA to meet the surge in withdrawals. However, uniBank had ELA which was yet to mature.
Naturally, the existing ELA had to be paid off first before any additional ELA could be considered.
The other difficulty was that the collateral did not have adequate T-bills as collateral to back a new request, and granting unsecured ELA was being discontinued.
On the other hand, he said BoG was concerned that the liquidity difficulties could result in daily clearing failures that would have systemic implications for the entire banking industry.
Therefore, Dr Asiama said BoG suggested to uniBank to explore the interbank money market more aggressively for liquidity, and it returned with UMB, which had adequate T-bill investments to use as collateral
According to him, in exploring options as possible collateral for the borrowing on the part of uniBank, BoG knew that uniBank was to receive about GH₵330 million in ESLA and also government receivables in excess of around GH₵900 million at the time.
Dr Asiama explained that BoG was comfortable that it had something to hold on to as collateral because the above payments would always be made through their settlement accounts with BoG.
“This was why under the circumstances (and faced with the potential danger a non-action would entail) we decided to facilitate the interbank trading by supporting UMB so that they lend interbank to uniBank.
“If we did not do so, uniBank could have started failing daily clearing and we would still have to give them overnight liquidity support (uncollateralised), which would have systemic consequences anyway.
“This could pose a financial stability risk for the entire industry given that uniBank was regarded as systemically important,” he stressed.
He said around end January 2017, BoG was informed that uniBank had paid back GH₵150 million out of the GH₵300 million granted them, but continued to service the facility.
In view of this, he said uniBank  was summoned to discuss the issue, and they explained that the MTN roadshow had to be truncated due to election-related uncertainties, but were hopeful to pay off the remaining GH₵150 million by end January since  uniBank was expecting that government-related exposures would be paid to them early enough to help lessen the liquidity pressures.
“Unfortunately, by end-February 2017, we were informed again that uniBank had not paid back the GH₵150 million remaining although they continued to service interest on the facility.
“Upon assumption of office by the new Governor, and with this development in mind, I prompted him on the need to get the Minister of Finance to pay uniBank at least some part of their claims on government.
“The Minister of Finance was actually invited to the Bank, based on my promptings to discuss these payments to uniBank, but he declined suggestions, on the grounds that uniBank had gotten enough support to thrive,” he said.

Source: Elvis DARKO,thefinderonline.com

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