Former President John Dramani Mahama has hinted that he will introduce a new banking system to help inculcate smaller banks into the banking system if he is given the nod in the 2020 general elections.
Speaking in a Facebook live broadcast on Thursday, the former president said the decision by the Bank of Ghana to introduce a new capital requirement of $400 million into the banking sector has left certain segments of the market orphaned since the larger banks do not have the risk factor to lend to small to mid-size enterprises (SMEs).
“So our policy working group is working on how to regulate the banking system but to let everybody enter the sector of the market they want to do. The big banks, that is the class A banks are not good at SME lending because they can’t handle the risk. The indigenous banks were better at handling the risk at the SME level than the bigger banks so our policy working group is working on all these things and at the right time we will bring them out but I think government pushed this thing too quickly and has created a huge debt for the taxpayer,” Mahama argued.
The Bank of Ghana’s new Capital Requirements Directive (CRD) increased the minimum regulatory monetary capital for universal banking licence holders in July 2018 to four hundred Ghana cedis (GHS400).
The BoG has also since 2017 carried out a series of clean up exercises with the Securities and Exchange Commission.
So far, the sector has seen the collapse of over 400 financial institutions, including seven indigenous banks.
Mr Mahama indicated that in order to restore indigenous players into the banking sector, he will introduce a three-tier banking system into the banking sector if he is voted into power.
According to him, the banks will be segmented into class C, B and class A banks with different capital requirements.
“So we will restore Ghanaian investments in the financial sector and we will do it this way; all banks do not cater to the same segment of the market, there are top banks that cater to a certain segment of the market and there are smaller banks. If you go anywhere in the world, there are different banks with different capitalization that cater to different segments of the market. You can’t come out and say every bank must have four hundred million capital reserve, it is not necessary.”
“You can have different tiered banks and that is what we are going to do, we are going to have three-tiered banking system; we will have class C banks with an eighty million dollars ($80M) capital reserve, if you are in this segment of the market, you are a regional bank or something. We will have class B banks with a two hundred million dollars ($200m) capital reserve and they will also be in this sector of the market and then we can have the class A banks, the huge banks, four hundred million dollars ($400m) and above and everybody will be ok, you just have to improve the regulation.”
BoG’s decision to close banks harsh and extreme – Mahama
During the same program, the ex-president described the revocation of licenses of some financial institutions in the country as harsh and extreme.
On August 14, 2017, the BoG in its press statement announced its approval for the takeover of two indigenous banks, UT Bank and Capital Bank by GCB bank.
BoG cited the insolvency of the banks in question, as the major reason for the revocation of their operating licenses.
According to the central bank, upon several agreements with the banks to increase their capital requirements, managers of the banks failed.
Consequently, to protect customers, the licenses of the banks were revoked under a Purchase and Assumption transaction with GCB bank.
Roughly after a year later, on August 1, 2018, the BoG again announced the consolidation of five indigenous banks to form a new bank called the Consolidated Bank Ghana Limited.
The five collapsed banks included Unibank Ghana, Royal bank, Beige bank, Sovereign Bank and Construction bank.
The same insolvency reason was cited as a cause of the collapse of the various banks.
Mr Mahama explained that his government had seen signs that some of the banks were struggling but instead of closing them down, they rather decided to give them policy and monetary support as well as time to recover.
“When we were in government the red flag was being waved in the banking sector so we started the processes for bringing things back on track. Unfortunately, we left office before all those measures put in place could crystallise but a new government came to power and I don’t know whether they panicked or whatever happened but certainly the route they took was extreme, it was harsh and I think they have created more harm than they have solved.”
According to Mahama, the new minimum capital requirement of four hundred million Ghana Cedis led to the insolvency of most banks.
He argued that the posture of the BoG and government officials in putting pressure on the banks to fulfil the minimum capital requirement led to panic withdrawals in the banking sector hence the insolvency of the financial institutions.
Mr. Mahama added that he would work to restore the sector if he is voted into power.