Prof Lord Mensah criticizes proposed ADB-NIB merger as “economically senseless”

Professor Lord Mensah of the University of Ghana Business School (UGBS), has raised critical concerns regarding the proposed merger of ADB and NIB. His assessment is underpinned by a conviction that such a merger would be economically unwise.

Professor Mensah contends that the amalgamation of two sizable financial institutions, like ADB and NIB, is inherently flawed from an economic standpoint. He underscores the principle of prudent economic management, arguing that it precludes the merger of two state-oriented banks.

Central to his argument is the potential for this merger to create significant imbalances in the resulting bank’s balance sheet. These imbalances, he asserts, could have far-reaching implications for the institution’s financial stability and performance.

In a call for greater transparency and economic justification, Professor Mensah urges the finance minister, Ken Ofori-Atta, who supports this initiative, to provide a comprehensive paper outlining the economic value that such a merger would bring, particularly in the context of ADB acquiring NIB.

Furthermore, he posits that external investments represent a more pragmatic avenue for steering the economy in a positive direction. In his view, NIB, grappling with financial constraints, requires an infusion of external capital to rejuvenate the institution.

Government mulls NIB takeover by ADB

Government, in a bid to address the persistent financial tribulations besieging the National Investment Bank (NIB), has cast its gaze towards a potential takeover by the Agricultural Development Bank (ADB).

The implications of this nascent financial maneuver are profound, both for the institutions involved and the broader financial ecosystem of Ghana.

A Troubled Path: NIB’s Ongoing Struggles

The National Investment Bank, an institution founded in 1963 with a primary mandate to catalyze rapid industrialization across various sectors of the Ghanaian economy, finds itself in turbulent waters. In recent years, NIB has grappled with a series of financial challenges that have eroded its standing and shaken confidence in its ability to fulfill its developmental role effectively.

These challenges, characterized by dwindling profitability, ballooning non-performing loans, and inadequate capitalization, have catalyzed a search for viable solutions. NIB’s precarious financial situation has prompted an earnest soul-searching exercise within the Government, culminating in the contemplation of a merger with the Agricultural Development Bank.

The ADB – An Instrument of Resuscitation?

The Agricultural Development Bank, on the other hand, is no stranger to the tumultuous currents of Ghana’s financial landscape. Its own journey towards stability and growth has been marked by strategic repositioning, including a successful listing on the Ghana Stock Exchange in 2016. With a diversified portfolio and a history rooted in agricultural financing, ADB presents a potential lifeline for NIB.

The central question, however, revolves around whether ADB’s involvement can indeed steer NIB back to calmer waters. While the notion of ADB taking over NIB is premised on the idea of synergies and enhanced financial stability, the intricacies of such a merger warrant meticulous scrutiny.

Evaluating the Rationale: Government’s Fiscal Constraints and IMF Program

The government’s rationale for this takeover is primarily grounded in fiscal realities. Ghana’s engagement in a $3 billion program with the International Monetary Fund (IMF) to resuscitate its economy places considerable strain on its financial resources. In this context, the government’s ability to continue providing financial support to NIB has been significantly curtailed, necessitating alternative measures.

The government’s stance is emblematic of a larger predicament faced by economies grappling with the balancing act of maintaining financial stability while propping up ailing state-owned entities. The NIB-ADB merger, therefore, emerges as a pragmatic move within this challenging fiscal milieu.

Countering Arguments: Opposition to the Takeover

Nevertheless, this prospective takeover has not been without opposition. A contingent of stakeholders contends that NIB has exhibited signs of resurgence. Notably, the bank has reported substantial deposit growth and taken proactive steps to curtail revenue leakages. These proponents argue that a strategic injection of ¢2.2 billion in capital, supplemented by private sector investments, could catalyze NIB’s recovery without the need for a merger.

They further suggest that NIB should be granted the latitude to tap into private investor pools and float shares to individuals and institutional investors to bolster its capital base. This alternative path, they argue, would not only salvage NIB but also maintain its independent identity.

Source: Norvanreports