Financial Sector: Adoboli explains clean-up team’s difficulty in tracing assets of SDIs & micro finance firms
Financial Analyst, Kwaku Adoboli, has explained why it was difficult for the financial sector clean-up team to trace assets of savings and loans, microfinance companies, and specialized deposit-taking financial institutions (SDI).
He attributed the difficulties to the informality of the system at those levels.
He explained that even though the big banks also got into trouble, they all had a certain level of formality in the regulation, they were faced with demands on the regulatory reporting and assets that they held on books as a defense against any bad liabilities but that was not the case with the SDIs and the microfinance companies.
His comments come at a time the Governor of the Bank of Ghana (BoG) Dr Ernest Addison had indicated that unlike the banks whose assets were easily traceable, it was tough following up on the assets of the SDIs and the microfinance companies.
Answering questions at the 115th Monetary Policy Committee (MPC) press conference in Accra on Monday, November 27, Dr Addison indicated that the cost involved in sanitizing the SDIs alone, for instance, is higher than doing that for the banks.
It is difficult to trace assets of the SDIs and sometimes the assets are not even available to trace them, but with banks, their assets are easily traceable, he argued.
The Bank of Ghana had been criticized by some analysts for spending huge money to clean up the financial sector. In the view of the critics, the BoG could have used the funds to rescue the banks rather than collapsing them.
But Dr Addison said “I hear statements like we spent so much money to clean up banks but you don’t compare apples with apples, because that GHc22billion or Ghc25billion that is quoted was not the amount spent to clean up banks alone. It was the amount spent to clean up banks, savings and loan institutions, microfinance institutions and institutions that were licensed by the Securities and Exchange Commission (SEC).
“That is the entire financial sector cleanup cost, so when people make that comparison they are not comparing apples with apples. In particular, because the SDI cleaning can be very expensive, with the banks we are able to recover assets, the receiver is working on recovering assets from the banks.
“The microfinance institutions, the savings and loan institutions that were shut down almost had no assets, you could not trace assets. Most of them had just dissipated depositors’ funds and you could not even find what those resources were used for. So cleaning up the SDI sector can even be more expensive to the budget than cleaning up the banks. If you will recollect, everybody got funds full, under normal circumstances that doesn’t happen anywhere. We have set up a deposit insurance arrangement that will make sure that you get some payment if your financial institution goes into distress, you know how much the deposit insurance will pay. In our recent history Ghanaians have been used to getting their deposit refunded fully, which makes it very expensive to the budget.
“So yes, the legacy problems, we are very much aware of them we have to find the resources to be able to complete the work.”
Asked for his view on this issue raised by the Governor and what can be done to deal with it while speaking in an exclusive interview with 3news.com on the sidelines of an event to present the findings on research conducted on ‘Unravelling the Global Central Banks Losses (Africa and Eruepo)’ by the Ghana International Trade and Finance Conference (GITFiC) in Accra on Wednesday, November 29, Mr Adoboli said “I can’t contradict the Bank of Ghana Governor in that statement. It is clear to us that the government took a concerted effort to consolidate our financial system and the 25 billion they spent, of course, some of it was directly allocated to the big bulk bracket banks and taking their bad assets and making good the loans that were on their books but that money is also still allocated to the micro lenders etc, and there are still actions going on to resolve the outstanding.
“Of course, the government is running into trouble, it has run out of money so it has to slow a lot of those things down, you have seen also slow capital expenditure on roads etc. I suspect that the claims that continue to exist for the small and micro lenders will eventually be resolved and then there will be no question of whether or not they spent that money on the whole system.
“The reason why the Bank of Ghana or the clean-up team is now struggling to find the assets of SDIs and microfinance lenders is really the informality of the system at those levels. The big banks, even though, they got into trouble, all of them had a certain level of formality in the regulation, certain demands on the regulatory reporting and assets that they held on books as defence against any bad liabilities.”
Providing the solution to this challenge, he said “What we need to see now is those regulations extending to the lower tiers of the economic system using technology and huge sensitization efforts.
“There should be no reason why we are not creating education and guidance and having sessions like this for those in the micro and small lending community because they are the ones who are responsible for increasing access to everyone in society so we need to teach them hand holders and also increase our expectations on how they meet the regulatory requirement This can be done using more funds from partners like the World Bank. If they want us to plug into this global system they also have to fund the operation of the system.
“You have to constantly review your regulation, implement resensitize, keep each new generation learning how the system is supposed to be working at the same time increase capacity for that regulation for commanding control of the system so that we can manage the risk properly.”
Source: 3news.com
