An American economist, Dr. Sa-ad Iddrisu, has urged President Nana Addo Dankwa Akufo-Addo and his administration to create a workable and encouraging environment that would allow banks to finance the private sector and promote economic growth and development.

Following President Nana Addo's recent participation in the Breakfast Meeting on Agriculture and Agribusiness Financing in Accra on Monday, October 16, he issued this call in a release on October 17, 2023.

The President urged financial institutions across the country to increase lending to the private sector at that interaction.

Dr. Iddrisu, in his statement stated that, “I acknowledge the President’s calls to banks to invest in the private sector. However, there might be a disconnect between the President’s aspirations and the economic realities shaped by his administration. A closer examination reveals that the challenges banks face in meeting these expectations stem from the president’s and his government’s policies.”

He added, “One notable instance is the banking cleanup in 2017, where the government allocated substantial funds to address issues within the banking industry. The government used over $3 billion to clean the banking industry and collapse a sector that needed less than $1 billion to survive. The approach adopted by the government led to the collapse of banks that could have been sustained with a more strategic allocation of resources. This decision significantly contributed to the ongoing banking crisis in the country.”

Dr. Iddrisu further blamed the government's recent DDEP initiative for the banks' incapacity to extend loans to the private sector.

“Additionally, the introduction of the DDEP program in 2022 resulted in significant losses for several banks, impairing their ability to provide credit facilities."

The largest lender in the nation by asset value, GCB Bank Plc, reported a net loss of 593.4 million cedis ($50.5 million) for the year that concluded in December 2022, which represents the bank's first deficit since 1993, according to Bloomberg News.

By the end of December 2022, Standard Chartered Bank Ghana Ltd.—the biggest by market value—reported a 297.8 million cedi loss. 1.08 billion Ghanaian cedis and 2 billion Ghanaian cedis were lost by Calbank and CBG bank, respectively.

By the end of December 2022, a number of other banks had also suffered losses, notably the Central Bank of Ghana (BOG), which reported a loss of 60.81 billion GH cedis.

This raises concerns about how banks incurring such significant losses can provide credit facilities to the private sector to stimulate business growth,” Dr. Iddrisu added.

He also mentions the Ghana Financial Stability Fund, “Despite government promises to establish a $1.5 billion Ghana Financial Stability Fund by the end of July 2023, the government has yet to fulfill this commitment. Even with the World Bank’s $250 million loan assurance, the delay in raising the $1.5 billion funds has further undermined the financial stability of banks operating in the country.”

The increasing monetary policy rate wasn’t left out in Dr. Iddrisu’s release’ “The consistent increase in the Monetary Policy rate by the Bank of Ghana, from 25.5% at the end of 2016 to 30% by August 2023, has resulted in higher lending costs. Calls from myself and other Economists and Bankers for the BOG to reduce the policy rate have been ignored, making it difficult for banks to offer affordable loans to businesses.”

He concluded by admitting that these government policy failures had led to many distressed banks in the country.

“Given these circumstances, President Nana Addo and his government must reassess their approach. A recalibration of policies and a genuine commitment to supporting financial institutions are imperative. Only by establishing a realistic and supportive framework can these banks be empowered to provide the needed financial support to the private sector, fostering economic growth and development. The President, therefore, must address these fundamental issues before expecting distressed banks to perform wild magic and miracles,” he said.