Banking sector cleanup was IMF’s top 2017 recommendation – Addison

Upon assuming office in 2017, Dr. Ernest Addison, Governor of the Bank of Ghana, disclosed that the International Monetary Fund (IMF) identified Ghana’s banking sector crisis as the nation’s most pressing issue.

Key Issues and IMF’s Recommendations

Dr. Addison shared that the banking sector was nearing collapse, with customers queuing to withdraw their funds. The IMF strongly urged immediate and decisive actions to stabilize the situation.

“This was a banking sector in a near state of collapse. The IMF highlighted this crisis as the most critical issue, requiring swift and decisive intervention to restore stability,” Dr. Addison noted during an interview on Joy News’ PM Express Business Edition.

By 2019, significant reforms were implemented, leading to the removal of weak and insolvent banks and Specialised Deposit-Taking Institutions (SDIs).

Major Reforms Undertaken

Key measures during the reform period included:

1. Increased Capital Requirements: Minimum capital requirements were raised to ¢400 million.
2. Strengthened Corporate Governance: Enhanced rules curbed insider trading, related-party transactions, and violations of prudential norms.
3. Improved Oversight: Banks underwent stricter supervision, ensuring better management practices and stronger financial positions.

Dr. Addison emphasized that by the end of 2019, the banking sector was significantly stronger, with adequate capital to support economic growth.

Lending Patterns and Challenges

Despite the recapitalization efforts, banks channeled their resources primarily into government bonds rather than lending to the private sector.

“Interest rates had dropped from 28% to around 21-22%, and we anticipated increased lending to the private sector. However, the onset of the COVID-19 pandemic led to heightened government borrowing, diverting bank resources towards government securities,” he explained.

Breakdown of Affected Banks

1. Acquisition by GCB Bank:
   • UT Bank and Capital Bank were taken over via a purchase and assumption agreement.
2. Licenses Revoked (7 Banks):
   • Sovereign Bank
   • Beige Bank
   • Premium Bank
   • Royal Bank
   • Heritage Bank
   • Construction Bank
   • UniBank
     These were consolidated under the Consolidated Bank of Ghana.
3. Voluntary Exit:
   • Bank of Baroda folded its operations in Ghana.
4. Mergers (6 Banks into 3):
   • First Atlantic Merchant Bank merged with Energy Commercial Bank.
   • OmniBank merged with Bank Sahel Sahara.
   • First National Bank merged with GHL Bank.

These comprehensive reforms marked a significant turnaround for Ghana’s banking sector, ensuring its resilience and positioning it to better support the country’s economic growth.