The recent collapse and bailout of several banks, estimated to cost over billion dollars, demonstrate that our economic challenges are primarily human-made. We learned that five banks – Unibank, Sovereign Bank, Construction Bank, Royal Bank and Beige Capital either acquired their licenses fraudulently or violated the capital requirement with impunity. In consequence, the Bank of Ghana stepped in to revoke their licenses, reorganized their ownership structure, shore up their capital and put them under receivership. In their stead is a new Consolidated Bank Ghana Limited.
What led to the ‘collapse?’
According to the BoG, some of the insolvent banks obtained their licenses using suspicious and non-existent capital. In addition, some of the affected banks had breached cash reserve requirement, while others had negative capital adequacy ratio. These findings serve as a self-indictment of the BoG which, is the statutory body tasked with regulating the establishment and management of the banking sectors.
The BoG ought to have satisfied itself that all the requirements for set up are met before granting licenses. Its annual inspections should have disclosed these problems before they became a billion-dollar headache for an economy that can ill-afford such a financial malady. The BoG also revealed that the banks engaged in fraudulent transactions with shareholders and related parties. For instance, “Unibank’s shareholders and related parties acquired several real estate properties in their own names using the funds obtained from the bank under questionable circumstances.” This begs the question of how such dubious transactions escaped the corporate governance structures, including the external auditors, and regulatory scrutiny.
While the bailout is important for protecting innocent depositors, the culpable bank managers, directors, and related parties must be prosecuted for misappropriating depositors’ funds. So too must the government regulators be prosecuted for failing to exercise oversight responsibility, resulting in the massive breach of fiduciary duties and the attendant financial costs.
The only way fraud and wasteful spending of public funds will be curtailed in the financial sector is when those who engage in such financial shenanigans and their enablers are made to face the law. It should not just be a case of government intervening by taking over these banks. It has to cost managers and others who fraudulently converted taxpayers’ money.
This development also highlights the failure of the regulatory and supervisory structures in the banking sector. How did these banks successfully obtain licenses through false pretenses? Are the processes for acquiring these licenses stringent and thorough enough? Who are those at the helm of affairs as far as obtaining banking license is concerned? The responsible BoG officials failed in their duties to do due diligence and are therefore responsible for the financial morass.
What role did politics and campaign financing play in this debacle? It cannot be a mere coincidence that Beige Capital and Construction Bank were granted provisional licenses in 2016 [an election year]. Were these banks set up for the furtherance of political goals? If so, a broad-based inquiry is needed not only to understand the extent of rot but to put in place reforms that are necessary to prevent their recurrence. It goes without saying that a strong economy characterized by stable financial sector can only be achieved in an environment devoid of state capture.
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By: Marian Ansah/citinewsroom.com/Ghana
Follow @EfeAnsah
The post Marian Ansah writes: Punish bank officials for financial crimes appeared first on Citi Newsroom.
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