Collapse of indigenous banks unhealthy for economy – IEA

The Institute of Economic Affairs (IEA), an economic policy think tank, has noted that the collapse of indigenous banks as a result of the financial sector clean-up by the Bank of Ghana (BoG) has made the country’s financial sector unhealthy.

According to the IEA, though the financial sector seems to be making a recovery, full recovery is unlikely.

Speaking at a press conference on Tuesday, a Senior Economist at the Institute, Dr. John Kwakye, advocated for the  operationalisation of the Depositors’ Insurance Scheme to prevent a re-occurrence.

“Most of the banks that have collapsed were indigenous Ghanaian banks. And with their collapse, it looks like the indigenous ownership of the banking industry has decreased. In fact, this is unfortunate since indigenous ownership is key to the overall health of the economy,” Dr. Kwakye stressed.

The Bank of Ghana’s two-year banking clean-up exercise saw the closure of nine local banks over various regulatory breaches. They include UT and Capital banks which were acquired by GCB Bank in a purchase and assumption transaction in 2017. The number of banks operating in Ghana has now reduced from 35 to 23 after the clean-up.

In 2018, five banks including Beige, Royal Bank, Construction Bank, Sovereign Bank, and uniBank were collapsed and merged to form the Consolidated Bank. Two other banks, Heritage and Premium banks, also had their licenses revoked and added to the Consolidated Bank.

Dr. Kwakye observed that the negative effect of the clean-up has led to questions being raised about whether a different approach could not have been adopted in the reforms.

“This is a question that comes up. People have said, couldn’t the BoG and government have approached the reforms differently? The idea of establishing a Deposit Insurance Scheme has been mooted and it is not clear whether the scheme is fully functional, otherwise they could have fallen on those funds to repay depositors,” he stated.