Financial analyst and Member of Parliament for Bolgatanga Central, Isaac Adongo, has stated that the National Democratic Congress (NDC) had a superior approach to resolving the banking sector crisis that would not have brought hardship to Ghanaians compared to the Bank of Ghana’s recently completed reforms, which led to the collapse of nine banks and more than 400 other deposit-taking institutions.
Speaking to an Accra-based radio, CITI FM the MP said unlike the New Patriotic Party (NPP) which caused the collapse of indigenous businesses and caused massive unemployment, the NDC had put in place a quieter and less destructive approach to addressing the challenges and restoring confidence in the sector.
Mr Adongo explained that while the current banking reforms hinged primarily on a one-off recapitalisation and pronouncements that led to insolvencies, the NDC had planned a systematic approach to recapitalising the banks, using a risk-based capital raising exercise that would have seen banks build their capital over an agreed period of time.
“They had no idea how to properly manage this in a more systemic manner so that the confidence in the banking sector was not eroded,” he said.
Mr Adongo was responding to Vice President Dr Mahmoud Bawumia, accusation that former President John Mahama and the NDC had no clue on how to resolve the banking sector crisis.
He said the major pillar of the banking sector reforms under the NDC, the Internal Capital Adequacy Assessment Process (ICAAP) that the current leadership of Bank of Ghana ignored was now the one the central was training its staff on to enable them to implement.
“After you have collapsed the banks, you are now going back to look at ICAAP, to do what?,” he asked.
He said contrary to Dr Bawumia’s assertion, the NDC mapped out a number of superior strategies that it intended to use to resolve the challenges quietly, key among them being the passage of a new law, the Banks and Specialised Deposits-Taking Institutions Act, (2016), Act 930, to regulate the operations of banks and other deposit-taking institutions.
The MP said following the completion of the asset quality review (AQR) by the International Monetary Fund (IMF) and another validated review in 2015, the government at the time realised that the country did not have the necessary legal environment “that was strong enough to regulate the banking sector, which was what we inherited.”
“What did we do? We decided to amend the Bank of Ghana Act in order to provide a stronger corporate governance framework for the Bank of Ghana.
“We decided to change completely, the law that governs banks to include other deposit-taking institutions other than banks.
“So we put together what is now called the BSDI Act 920 and that was passed in 2016,” he said.
These new laws, he said provided an enhanced regime for the regulation of the banking sector.
They also gave the central bank a stronger ambit with which to work with, he said.
“So you see, when people say that Capital Bank and UT Bank went and took liquidity (from Bank of Ghana) and did what, (what they need to know is) in 2013/4, the banking laws did not frown on such conduct.
“We decided to to provide the law to stem that,” he said.
He explained that following the passage of the law, the government, led by then President Mahama also realised that not all banks needed huge capital to be able to serve their niche customers.
This, he said led to the introduction of a floor capital of GHS230 million as minimum capital.
Given that the amount was relatively small, Mr Adongo said all banks were in a position to meet it within the agreed period, unlike the recent capital demand of GHS400 million, which saw some banks’ licences revoked for being unable to raise it.
“Then in addition to that we came to look at each bank to assess the weakness in the bank’s balance sheet, the level of exposure you carry and we announced what you call an Internal Capital Adequacy Assessment Process (ICAAP).
“What ICAAP then did was to work with each of these banks, look at their balance sheets, what the weaknesses were and the amount of capital injection required in order for them to be sustainable and stronger.
“So, you see that it was not a one-fit all strategy,” he said, adding the NDC method required that after the ICAAP was implemented, the Bank of Ghana would then be hand-holding each bank based on its peculiar instances.
“Today, only last month, Bank of Ghana has now gone back to ICAAP and is now training staff on ICAAP and they are using IMF to do that training.
“Even the banks that they said have recapitalised are not strong enough and they have to implement and ICAAP programme to make them stronger.
“So between them and President Mahama, who understands finance?,” he asked.