Despite assurances given by Former Finance Minister Seth Terkper that a debt owed banks by Finatrade will not create any challenges, it appears the assurance has failed as Royal Bank is partially blaming the development as a cause for the revocation of its bankâ€™s license.
The now defunct Royal Bank in a response to the Bank of Ghana after it was consolidated with four other struggling banks, pointed out that Finatradeâ€™s one billion cedis debt also affected its operations.
The Ministry of Finance on November 25, 2016, gave a strong assurance that Ghanaâ€™s banking sector will remain strong and effective despite claims of imminent collapse due to the huge debt owed banks by Finatrade, a commodities company.
The Finatrade Group of companies which specializes in agri-commodities at the time was indebted to about 20 banks to the tune of about GHc1 billion and has since declared bankruptcy.
The amount was said to be almost half of the GHc 2.6 billion stated capital of the entire banking industry as at that time.
Former Finance Minister, Seth Terkper on theÂ Citi Breakfast Show in 2016 gave the assurance that Finatradeâ€™s indebtedness will not lead to a collapse of the banking sector.
Read: Government, Finatradeâ€™s GHC220m led to our collapse â€“ Royal bank
â€œI would urge you to take reports that are on the Bank of Ghana website which shows the non-performing loans in the country even though it increased to nine percent, it was between five and seven percent and it was because of the insistence of the Bank of Ghana that the bank
should start provision for these loans including the public sector loansâ€.
â€œAnd this is why we are doing the restructuring for VRA and others backed by the levies so I think that it is relevant to ask what has been the trend before we put out some of these thingsâ€.
He however questioned whether or not the banks did due diligence before advancing such huge funds to Finatrade.
â€œYes there is an issue with Finatrade but I just confirmed to you that Bank of Ghana as a regulator for the banking institutions is the one who is handling itâ€.
â€œAnother thing is can we also confirm whether the banks did due diligence before that exposure, these are some of the issues that we have to take up and I asked that same question in respect of VRAâ€.
â€œI asked them not to just assume that VRA is owned by the state and the state will come and take over the facility so you wonâ€™t do your due diligence. No, that should not be because they are established as state owned enterprises, so I am saying that those types of businesses are one of the things which Bank of Ghana is clamping down on and insisting that the banks make provisionâ€.
Banks sue Finatrade
Some of the banks dragged Finatrade to court in 2015 in a bid to have their monies recovered but they are yet to achieve that aim.
Following the consolidation of the Royal bank with four others to form the Consolidated Bank Ghana Limited, it is now blaming the government for contributing to the bankâ€™s woes and subsequent revocation of its license.
The bank believes it wouldnâ€™t have faced the challenges if government had also paid a debt of 150 million cedis it owed the bank.