Ghana is back-pedaling out of a banking crisis as the government takes on debt to save a troubled sector and vows to punish the executives responsible.
Early in August, Ghana’s central bank revoked the licences of five local banks and combined them into one - the newly created state-run Consolidated Bank - issuing 5.8 billion cedi’s ($1.2 billion) in bonds to clear their debt.
The Bank of Ghana (BoG) accused the collapsed banks of a range of issues, including poor corporate governance, questionable transactions and dishonest reporting.
The merger was just one step out of many that President Nana Akufo-Addo’s government has had to take to reform Ghana’s rotten banking sector, brought close to collapse as a result of bad governance and weak lending.
This past week, Ghana’s deputy central bank governor, Elsie Addo Awadzi, said in an interview that law enforcement agencies would “further investigate criminal behaviour” connected to the failed banks.
Ghana faces a “now or never” decision to clean up the banking sector, economist Eric Osei-Assibey told AFP.
“This central bank is carving a niche for itself. It is beginning to bite and that alone could engender some confidence in the medium and long term,” Osei-Assibey said.
The banking intervention will add to Ghana’s already high debt burden, said Razia Khan, Africa economist at Standard Chartered, in a note to investors earlier this month.
Ghana is currently in its final year of an IMF bailout totalling almost $1 billion (Sh100 billion), with its debt as a percentage of gross domestic product hovering over 60 per cent.
Along with the Consolidated Bank loan, the central bank will give support to other banks in order to help them meet a minimum capital requirement of 400 million cedis by the end of 2018.
Despite the turmoil, “Ghana has made good progress on fiscal consolidation in recent months”, said Khan.
“The action taken to strengthen the banking system is likely to be viewed as a necessary measure by the fund and we do not expect this to disrupt disbursements under the current IMF programme,” she said.
If Consolidated Bank is run properly, it may even play a positive role in the economy, said Souhir Mzali, Africa editor at Oxford Business Group, a London-based research firm.
“It might transform from a debt burden to an asset by the time the government is expected to offload shares in 2020,” Mzali said.
Of course, there will be consequences. “It’s going to affect banking habits,” said Kwesi Jonah, senior research fellow at the Institute of Democratic Governance in Ghana’s capital of Accra.