ghananlpcommunity/ghana-gov-speeches-sentences huggingface dataset:
And so, let me take the opportunity to thank you all for your various r oles in supporting the policy process and for the achievements chalked so far.
Surely, without you , our policy decisions would have been difficult or even impossible to convey across the country .
I am hopeful that th e collaboration will continue in the years ahead.
Ladies and Gentlemen, journalism is one of the most powerful professions in our world today because it helps propagate and s hape ideas, policies, programs and the destiny of societies.
Indeed, financial journalism can be used as a tool to advance the objectives of sound fiscal policies, efficient transmission of monetary policies, address bottlenecks hindering financial intermediation in the banking sector, promote s tructural reforms, and above all support the process of economic growth and poverty reduction.
Distinguished guests, ladies and gentlemen, permit me to briefly touch on the role of the Press in the Bank of Ghana’s Monetary Policy Process and a few recent developments… 4.
As mentioned earlier, the Bank of Ghana sees the press as a strategic partner and important stakeholder in helping communicate and sensitize the public about the Bank’s policy decisions.
In fact, the literature on central bank communication explains that an appropriate and sound communications framework of a central bank is essential in conveying policy intentions to economic agents and helps to enhance the transmission of policy impulses.
This is particularly true in the case of the Bank’s current policy framework of inflation targeting where the central bank’s ability to anchor private sectors’ inflation expectations plays a crucial r ole in the achievement of its inflation targets.
Moreover, communication with the public and transparency are central 3 tenets of inflation targeting and therefore underscore the role of the media in conveying policy decisions to economic agents.
Members of the Press, Ladies and Gentleman, remarkable progress was further made on the macroeconomic front in the past year.
In particular, the latest economic data reflect strong growth prospects, single digit inflation since April 2018, and three consecutive years of record trade surplus es which has enhanced prospects of additional reserves build -up.
Monetary policy implementation has remained prudent to critically deal with inflationary risks in the outlook in support of broader macroeconomic objectives.
On the financial sector, the Bank concluded the two -year comprehensive clean -up and recapitalisation reforms.
These reforms have helped restore public confidence in the sector, strengthened financial sector stability a nd resilience, and promoted ethical banking practices.
Gains from these reforms have begun to reflect in key indicators of the industry including a rebound in credit growth and banks’ profitability.
The media has been particularly supportive in all our processes in carefully disseminating the central bank ’s policies and outcomes to the public.
L et me thank you all once again for your various roles in this regard.
Going forward, the Bank will continue to pursue the appropriate mix of policies to sustain macroeconomic stability, a key pre -requisite for sustainable growth of the economy .
The bank will also remain vigilant to sustain the progress made in restoring stability and confidence in the financial sector to forestall a recurrence of such malaise.
It is clear at this stage that the media and journalists in general have a critical role to play in the sustenance of financial stability.
In this regards, the Bank will continue to expect your continued support in undertaking important tasks for the country.
Before I conclude let me touch on the important significance of this year 2020.
The year marks the first time fiscal policy management under a rule based regime will be tested in an election year and also from a monetary policy point of view, the first t ime the memorandum of understanding between the MOF and the BOG will also be tested in an election year.
Let me seize this opportunity to assure all that the institutional frameworks that have been put in place to ensure compliance with these arrangements is intact.
Thank you for the attention and let us use this soiree to interact as much as possible and build stronger bonds as we work in the interest of the country.
71ST ANNUAL NEW YEAR SCHOOL AND CONFERENCE Bank of Ghana Forum FINANCIAL SECTOR REFORMS DR.
ERNEST ADDISON GOVERNOR, BANK OF GHANA JANUARY 14, 2020 CEDI CONFERENCE CENTRE AUDITORIUM UNIVERSITY OF GHANA 1 All protocols observed.
Madam Chairperson, 1.
It is a great honour to be invited to make a presentation on the financial sector at this 71st Annual New Year School.
Letme thank the University of Ghana for continuing this tradition of “the New Year School” which serves as a unique forumfor policy makers, the academia, corporate institutions, and people from all walks of life to think through some critical issues that confront this country.
As with the theme of the season, t he New Year presents an opportunity for us to take stock of what we have achieved in the previous year and set an agenda for the ensuing year, dedicating ourselves to the tasks required to meet new objectives and targets.
For us at the Bank of Ghana, it is a time of reflection, reviewing our policies over the past few years and our expectations for the New Year.
On assumption of office in April 2017, we were confronted with an economy that was recovering from yet another bout of fiscal crisis after the conduct of a general election which saw the incumbent government losing.
The economy was characterised by weak growth, high inflation, a significant current account deficit , and currency depreciation.
To stabilize the situation and regain macroeconomic stability, the re was a strong focus on implementing a sound policy mix to restore policy credibility.This required strict adherence to fiscal 2 discipline and a zero tolerance to monetary accommodation of fiscal excesses.
Along with this, there was also the need for more effective management of the country’s foreign exchange reserves with a view to keeping the currency stable.
In addition to macroeconomic challenges at the time, there were simmering issues within the financial sector as well.
Even though I had heard about the DKM crisis and difficulties in some banks, I had no idea that the financial sector would be the area tha t would present themajor challenges and require the most difficult policy choices.
It turned out that we inherited a banking system that was on its knees, and an equally distressed specialised deposit -taking sector (made up of savings and loans companies, finance house companies, microfinance companies and rural and community banks).
From the initial briefing we received from technical assessments (Asset Quality Reviews) carried out on banksin 2015 and updated in 2016 by our Banking Supervision Department and international partners to establish the solvency of the banking sector, two banks (UT Bank and Capital Bank) were clearly classified as deeply insolvent, while seven othershad been identified as severely undercapitalized.
Faced with these facts, t he urgent focus of our initial policies was to design credible plans for the resolution of the two insolvent banks to prevent spillovers to the other banks and the broader economy.
In 3 addition, the other undercapitalized banks were tasked to submit recapitalization plans and work to implement same.
UT and Capital Bank 5.
Our immediate efforts to address the insolvency of UT Bank and Capital Bank started with meetings with the shareholders and directors of the two banks, where we shared with them the diagnosis of insolvency and requested them to implement measures to quickly restore theircapital adequacy to prudential levels.
We were not required to do so under the law as the two banks were already classified as insolvent by the technical assessment carried by BoG prior to the start of my administration.
Moreover , the Banks and Specialised Deposit-Taking Institutions Act of 2016 (Act 930) required us to revoke a banking licence once an institution reached the stage of insolvency.
Nevertheless, we gave the se banks the opportunity to correct the insolvency and tried to exhaust all the options.
To start with, UT bank submitted a capital restoration plan which was not credible, essentially requiring Government to take over the bank’s portfolio of bad debt it had created through loans that were granted to certain borrowers sometimes above regulatory limits, and that had become unrecoverable.
The proposal was simply for Government to assume the cost of these bad loans at the expense of taxpayers, while the shareholders benefitted from an injection of money from Government for the bad loans it would have assumed.
It was such a self- serving proposition for shareholders, directors,and managers of UT bank (some of whom were also shareholders) to mismanage the bank through poor credit administration and poor governance in general and require the State to bear the costs of the resulting bad loan portfolio.
This was preposterous as it would not only have cost tax payers billions of Ghana cedis for nothing, but it would also have unduly rewarded the shareholders, directors and managers of a bank that had failed because of poor governance and management practices, all a result of voluntary choices made by a group of people who later on felt they deserved to be bailed out by taxpayers.
Indeed, so bad was the financial condition of UT Bank that when BoG engaged with other banks to explore whether they would be willing to acquire the bank and rehabilitate it, they showed unwillingness to do so after they had conducted their own independent due diligence on the bank.
In fact , one of such potential bank acqu irers after their due diligence exercise noted “The poor quality of loans assets, potential tax liabilities, existing litigations and demands by third party lenders for settlement of their accounts makes the acquisition of UT bank as a going concern, a highly unattractive and risky proposition”.
This conclusion was arrived at based on the following factors: • UT bank had not filed corporate tax returns since 2015, • Asset quality was extremely poor with NPLs of 44 percent, 5 • Loans that had been classified as performing had not been serviced for a year, indicating that the NPL ratio was underestimated, • Collateral security for loans had not been perfected and in most of the cases, the security of loans had not been stamped or registered, • The bank was in default of borrowing from several international lenders including the IFC, DEG, • There was active litigation against the bank (valued at over GH¢170 million), and, • The bank had excessive risk concentration to a few major depositors.
Indeed, the potential acquirer’s overall assessment was that the net asset value of UT Bank was negative and the only way it could consider an acquisition of the bank would be on condition that the BoGwouldprovide this acquiring institution with the capital to buy UT, as well as provide liquidity support, and provide it with the financial support to acquire the necessary software to run the bank.
What is more, the potential acquirer insisted that it would retain only 70 employees of UT bank if it acquired the bank assuming it received the financial support from BoG to do so.
Obviously, the Management of Bank of Ghana did not accept these proposals as to do this would have meant that the B oG would have been paying private investors to take over the bank.
The other bank, that is, Capital bank, refused to cooperate with potential private sector acqu irers and would not even allow due diligence to be carried out.
We convened several meetings with shareholders and Directorsof the bank to try to ensure that they cooperated with the potential acquirers but t heir posture remained one of defiance because they had become accustomed to getting things done through influence peddling.
Previously, Bank of Ghana had approved several applications for liquidity support to Capital Bank on unjustifiable grounds and Capital bank did not foresee that the BOG would behave differently even under the new management.
Three months into office of the new B oG Management , we reached a decision to revoke the licences of the se 2 banks but we needed to plan the execution of that decision.
Several issues came up.
For instance, • Will revoking the licences on a Friday night be better to allow some time for the receivers to take effective control of the two banks over the weekend or would any other day be suitable?
• What would be the fate of those who had claims on the two banks?
In particular, what would be the fate of depositors whose funds would be locked up in the receivership process for a while pending realisation of value of any remai ning assets of these banks?
7 • Could deposit claims be transferred to a healthy bank to allow depositors to have access to their funds sooner than later, in order that the entire banking system was not threatened by depositors agitating for a return of their deposits?
• If so, who could act as a credible acquiring banks of such deposit claims?
Which of the existing banks at the time had the financial muscle and branch network to handle this effortlessly?
• How was the transfer of deposit claims to such an acqui rer to be funded, given that the value of assets of the two banks did not match the deposit claims that were to be transferred?
• Who was to bear the cost of paying for the return of depositors’ funds?
After all these considerations, the Government agreed to provide relief to depositors by stepping in to guarantee the payment of all depositors’ funds.
This paved the way for the Bank of Ghana to finalise what was to become its eventual resolution approach of protecting depositors from losses by allowing depositors’ claims to be transferred through a Purchase & Assumption transaction to a strong and indigenous acquiring bank, that is GCB Bank, to ensure that depositors of the two banks ha d access to their funds through GCB , supported by a bond issued by the Government to fund the deposit liabilities.
8 13.
So, o n the morning of Monday, 7 thAugust 2017, the Bank of Ghana announced the revocation of the licences of the two banks and the appointment of two joint receivers with immediate effect as required by law.
By 3pm o f the same day, the exercise had been broadly declared as successful as the receivers had taken effective control of all branches of the two fa iled banks.
Most importantly, the assurance provided by the Government that all depositors of the two banks would receive their funds, significantly calmed depositors.
Indeed, the Bank of Ghana received international commendation for the smooth execution of the resolution of the two banks.
By all indications, this action shook the financial system, and it dawned on all shareholders and directors of the remaining banks that the Bank of Ghana was resolutein executing its statutory mandate with the seriousness that was required to stabilise the banking system.
Not surprisingly, the next set of banks that were identified as having challenges responded to enquiries and cooperated more effectively to submit recapitalization plans although it later turned out that these plans did not yield the desired results.
Subsequent to the revocation of the licenses of UT Bank and Capital Bank, BOG also commissioned investigative work to examine into more detail, the factors that drove the two banks into insolvency.
The report unearthed a number of malpractices dating back to the banks’ inception.
These included: 9 • Indebtedness of shareholders and directors to the banks .
The shareholders and directors of the bank took huge personal loans from the bank which was not reported to the Bank of Ghana and remained unpaid in contravention of Section 70 (4) of Act 930 (as amended), which states that management of a bank shall report to the Board and BOG an exposure to an insider or related interest of that insider.
• Non-existence of required capital as licenses were obtained by false pretence or misrepresentations.
The application for a banking license was supported by non -existent investments/placements.
Even though this was later brought to the attention of the Bank of Ghana at the time , it decided to convert the shortfall into loans for shareholders instead of revoke the licence.
• The banks were abused by their related holding companies.
For instance, one bank was paying royalties for the brand name even at a time that the bank’s financial performance was abysmal and could not pay dividends.
This decision was made by four (4) out of seven (7) members of the Board without the consent of the other significant minority shareholders, including an International Fina ncial Institution.
As a result, the international institution abrogated its relationship with the bank and this led to most foreign lenders cutting off their credit lines to the bank and recalling their credits thereby creating serious liquidity squeeze to the bank.
10 • Unbridled use of Bank of Ghana Liquidity Support .
Both banks were granted a total amount of GH¢1.48 billion as liquidity support in 3 to 4 tranches under circumstances which were questionable.
There was no follow up to ensure that liquidity support was used for the purpose for which they were granted as required by law .
In the circumstances, the liquidity support was misused with some of it used mainly for placements, investments, financing related party transactions, and loans to highly politica lly exposed people.
• Non-Executive Directors of the bankscompromised their independence and fiduciary duties to serve as checks on Executive Directors.
The directors/management of capital bank misrepresented the financial status of the bank when a property belonging to the bank was assigned to one of the shareholders in 2012 without properly accounting for it in the books of the bank.
• Non-Executive Directors interfered in the day -to-day administration of the bank which weakened the management oversight function of executive directors.
Some non -Executive Directors were also acting as consultants to the same banks with no clear mandate, which gave rise to conflict of interest situations.
• There was general lack of adherence to credit management principles and procedures as the banks were heavily exposed to insiders and related parties.
• Diversion of funds to holdi ng companies and their related parties was wide-spread.
Placements could not be traced to the 11 bank’s records though some customers showed proof of their investments with the Bank.
• Irregular board meetings also accounted for the weaknesses in the board oversight, and lastly, • Very high executive compensation schemes were being operated by the affected banks which were not commensurate with their operations.
The risk and earnings profile of the banks could not support the compensation schemes.
The Great Consolidation 16.
After revocation of licenses of the two banks, t he Bank of Ghana startedmonitoring the implementation of the recapitalization plans for the other banks that had been declared undercapitalised or significantly undercapitalised in the 2015/16 Asset Quality Review .
This process brought UniBank under the microscope after the Banking Supervision Department assessed the bank as significantly undercapitalized.
BOG subsequently met with the shareholders and directors of the bank to discuss the irserious liquidity shortfalls between August 2017 and October 2017.
The Bank of Ghana had to support the bank to remain in operation as it tilted on the brink of collapse.
With the benefit of hindsight, it appeared that the liquidity support was being used to support the businesses of the group and the bank was not being truthful in its disclosures.
Unibank had been on liquidity support for a 12 long time and asfar back as June 2016 , the direct liquidity support from the Bank of Ghana to UniBank totalled GH¢1.43 billion.
Under circumstances that are still being unravelled, the Bank of Ghana unusually also extended liquidity support indirectly through third party banks to Unibank totalling GH¢1.0 billion in the second half of 2016, bringing the total support to the Bank to GH¢2.43 billion in just a year.
By March 2018,Madam Chair, the situation of UniBank had deteriorated to the extent that the new management of the Bank of Ghana appointedKPMG as an Official Administrator (AO) to take over the running of the Bank and to provide independent assessment of conditions within the bank as well as hopefully he lp to rehabilitate the bank.
It took less than 3 weeks for the OA to report back to the BoG of very serious findings that had been uncovered with the overall assessment that the b ank was insolvent and not viable.
Specifically, the findings on UniBank within the first few weeks of official administration revealed a number of troubling occurrences such as: • Gross misreporting of financial information.The OA found out that uniBank had consistently underreported the size of its liabilities on its balance sheet to BoG and the public, and that it had assumed a significant amount of liabilities and granted loans, advances, and other forms of receivables (totalling about GH¢3.8 billion) which had not been reported, contrary to statutory requirements.
The bank had also deferred the 13 recognition of some significant expenses incurred in prior years and were amortising these expenses over a number of years.
This was done to enable the bank present positive financial performance in the periods the expenses were incurred.
Similarly, a number of guarantees issued by the bank to related and connected parties, which were either solely approved by the CEO of the bank or jointly with other officials, were consistently omitted from the bank’s list of guarantees provided to the BoG.
• The bank was unable to meet its deposits as and when they fell due without reliance on BoG liquidity support.
• The b ank continued to grantloans and undertak e investmentsusing BoG liquidity support.
• Diversion of credit lines provided by foreign lenders to unintended beneficiaries (mostly related parties), siphoning of funds from the banks to finance the operations of related parties • Properties acquired by Related Parties with funds siphoned from uniBank :Title to various properties paid for by the bank and recorded in the bank’s fixed assets register under caption “Capital Work In Progress (CWIP) ” amounting to GH¢28.2 million were registered in the names of the holding company HODA, and a number of affiliates namely Bolton Portfolio Limited, Alban Logistics, and StarLife Assurance Company.
14 • Income not sufficient to cover expenses even as the earning capacity of the bank continued to deteriorate as majority of its loans and advances had been granted to related parties who were defaulting.
• The bank had High NPLs (over 89%) and weak governance and internal control systems with significant deficiencies in credit underwriting and loan approval proce sses, compliance and reporting.
• Shares Purchased in ADB Bank during IPO with BOG liquidity support :A significant number of ADB shares were acquired by Belstar and Starmount, with funds obtained from uniBank Ghana Limited from emergency liquidity support obtained by uniBank Ghana Limited from the Bank of Ghana under questionable circumstances.
Thus, part of the liquidity support obtained by uniBank was improperly and unlawfully on- lent to Belstar and Starmount to acquire shares including shares held by the Financial Investment Trust, on behalf of the Bank of Ghana, in ADB’s IPO.
As of May 2018, the OA revealed that Unibank was insolvent with a Capital Adequacy Ratio ( CAR) of negative 74.65 percent even after making sufficient adjustment s to offset outstanding debt owed by government contractors.
The OA ’s technical assessment was that the bank’s equity value was negative and its continued existence 15 posed systemic risks to the entire industry.
This was consistent with the Bank of Ghana’s technical assessment at that stage.
Consequently, in August 2018, the license of uniBank and four others were revoked .
The four other banks were Beige Bank, Construction Bank, Royal Bank, and Sovereign Bank.