SSNIT to be badly hit by BoG’s directive to banks to halt dividend payment

The Social Security and National Insurance Trust (SSNIT) will be heavily affected by the Bank of Ghana’s directive to banks and Specialised Deposit-Taking Institutions (SDIs) in Ghana not to pay dividends to shareholders for the 2019 and 2020 financial years because of the Coronavirus (COVID-19) pandemic and its effects, Samuel Bediako-Asante, a financial analyst and the CEO of Sambed Consult, has said.

The central bank said the decision was to ensure that banks and SDIs are better able to support their customers throughout the COVID-19 pandemic and to absorb any potential operational losses for banks and SDIs from the COVID-19 pandemic.

A statement signed by the BoG’s secretary, Sandra Thompson said: “In furtherance of the above, and to ensure that banks and SDIs are better able to support their customers throughout the COVID-19 pandemic, to absorb any potential operational losses for banks and SDIs from the COVID-19 pandemic, the Bank of Ghana now directs that all banks and SDIs desist from declaring and/or paying any dividends or distributing reserves to shareholders, and from making any irrevocable commitments regarding the declaration or payment of dividends to shareholders, until further notice.”

But in a statement, Mr Bediako said the decision will have a negative impact on all the shareholders of the banks especially SSNIT.

He said: “SSNIT, in particular, will be heavily negatively impacted since a major part of its investment income or returns of its investment portfolio comes from these banks (both listed and unlisted) thereby affecting future incomes or payments to prospective and existing pensioners.

“It must be noted that SSNIT, in particular, already has a problem with its investment portfolio because of its investment holdings in some non-performing companies (eg. the abattoirs, Aluworks Ltd., PBC Ltd., Cocoa Processing Co., some Hotels, etc.); likewise the investment incomes of other fund management companies running the Second (2nd and Third (3rd) tiers of pension funds; all these affecting pensioners incomes in the near future.”

Below is his full statement…

SUSPENSION OF DIVIDEND PAYMENT BY BANKS: Implications and effects.

The Bank of Ghana has recently instructed banks in Ghana not to pay dividends to shareholders for the 2019 and 2020 financial years because of the Coronavirus (COVID-19) pandemic and its effects.

Banks in Ghana would have, normally, declared and paid dividends, as approved by their shareholders at the Annual General Meetings (AGMs), around this time of the year in Ghana, but that is not to be because of such instructions from the central bank – the Bank of Ghana, given reasons for such a decision as how the banks would be negatively impacted if they (the banks) should dole out such monies. But has the central bank (BoG) thought of the implications and effects this decision would have on beneficiaries of the dividends?

Implications and Effects:

** Individual and corporate shareholders will not have any income through their investments in these banks. But it must be noted that the majority of the individual shareholders are pensioners who have invested their hard-earned monies in companies (banks) through the Ghana Stock Exchange.

** Corporate entities, including Mutual Funds and Unit Trusts, SSNIT, and other asset management companies, including Pension Funds, are also to lose their investment incomes, which will negatively impact their returns to investors thereby making them unpopular, a situation which began even before the emergence of the COVID-19.

**P/s.

SSNIT, in particular, will be heavily negatively impacted since a major part of its investment income or returns of its investment portfolio comes from these banks (both listed and unlisted) thereby affecting future incomes or payments to prospective and existing pensioners.

It must be noted that SSNIT, in particular, already has a problem with its investment portfolio because of its investment holdings in some non-performing companies (eg. the abattoirs, Aluworks Ltd., PBC Ltd., Cocoa Processing Co., some Hotels, etc.); likewise the investment incomes of other fund management companies running the Second (2nd and Third (3rd) tiers of pension funds; all these affecting pensioners incomes in the near future.

** The Ghana Stock Exchange (GSE) will also see its trading activities going down since the most vibrant and active listed companies on the exchange are the banks. This situation can even lead to the pulling out of most players on the exchange.

Again, this decision of the Bank of Ghana will see the Ghana Stock Exchange (GSE) performing poorly for the two years running because of the possibility of how trading activities in these listed banks would be vis-a-vis the Financial Stock Index and the overall GSE Index. And, could this possibly lead to the GSE having problems joining the proposed broader West Africa Stock Exchange (WASE) platform?

We wait to see !!!

It may seem that the banks themselves collaborated with the BoG in this decision-making as they would also want to avoid, for any reason, paying these monies to shareholders as they normally wished, but most times cannot avoid. Meanwhile, in denying the shareholders their due, members of the Board of Directors and management (of these companies) have already taken their “part of the cake” in terms of fees and allowances for members of BoDs, and salaries and allowances for the management.

This directive from the BoG has come at the wrong time and definitely will have various negative effects on the investing public.

In the light of the above-stated reasons it will be better for the BoG to reconsider its directive or decision to the banks in order for the shareholders of these companies (banks) have their due, and to cushion them financially in a time like this.

The BoG’s directive would definitely create a vicious circle within the economy and make investments in the country a no-go area taking into account how so many citizens have lost their investments to the collapsed financial institutions post the financial sector clean-up.

Hope the BoG would listen this time around and take a more humane approach in this matter for shareholders/investors have already suffered too much through losing their investments in the collapsed financial institutions, namely the Microfinance institutions, Savings & Loans Companies, other Asset Management Companies, and the delisted former UT Bank.

Author

Sam Bediako-Asante, CGIA

(of Sambed Consult)

Email: [email protected]

Tel.: 0277518634 Read Full Story