According to financial analyst Michael Dawson, the government’s banking sector reforms have strengthened local banks and made them more resilient to shocks.
Dr. Dawson was responding to the Speaker of Parliament, Alban Bagbin, who stated that the government erred by not assisting local banks in succeeding.
“I believe the Speaker clearly does not understand the essence of the reforms.” “I will urge the government to consult with the Speaker in order to educate him on the importance of the reforms,” he said.
He added “If you assess the balance sheets of local banks currently, you will clearly see that the financial health of the Ghanaian-owned banks are stronger compared to the period before the cleanup exercise. “
It is better to have fewer local banks with strong financial capacity, than having many weak local banks unable to drive economic development, Dr Dawson further explained.
“I can tell you that, most of the local banks breached several banking regulations.They had governance issues.You had a situation where loans were given to family and friends without proper documentations.Depositors funds were diverted to build businesses of shareholders. Some depositors were not getting back their funds from some of the financial institutions.
In fact the financial system at the time, was on the brink of total collapse.
Poor business practices and weak capital positions of the banks and financial institutions were visibly seen. The liabilities of some of the local banks were more than their assets.
You also had a situation where some of the local banks were just surviving on liquidity support from the Bank of Ghana and putting depositors’ funds at risk.
The Government rather intervened to ensure that customers do not lose their money.
“I think the Speaker is unaware of the Government’s support to the local Banks.
After the clean up, the Government created the Ghana Amalgamated Trust (GAT) to guarantee capital injection for five local banks. This demonstrates government’s commitment in ensuring that the local banks are able to support economic development.
The robustness of the banking sector is due to the financial sector reforms.
The central bank indicated that the reason why most banks were able to withstand increased withdrawals and met depositors’ demand for cash in the lockdown period, was due to the fact that banks were solvent and well capitalised.
The remarkable resilience exhibited by the banking sector over the two-year period is due to the comprehensive financial sector reforms that took place before the Covid-19 pandemic struck in 2020.
The reforms has led to the stability and resilience of the financial sector.
