The Vice-President of the Republic, Dr. Mahamudu Bawumia, has responded to claims by the former President John Dramani Mahama that the financial sector mess was created by the current government and its clean-up was mishandled by the Bank of Ghana.
Dr. Bawumia gave his response at the launch of the United Nations Office for Project Services (UNOPS) $5 billion initiative to build 100,000 affordable homes in Ghana.
Dr. Bawumia noted that following the financial sector reforms under the Kufuor government, Ghana’s banking sector was strengthened, liquid and recapitalized. Under the NDC government of President Mahama however, Ghanaians watched painfully as gains from these far-reaching reforms implemented under the Kufour-led administration were eroded by years of no regulatory and supervisory oversight, leading to the licensing of institutions with fake capital, poor corporate governance, and impunity as shareholders plundered the deposits of poor depositors.
Dr. Bawumia stated that former President Mahama claims that the problems in the banking sector could have been handled differently, for example through the Non-Performing Assets Recovery Trust (NPART) which was set up under the Financial Sector Adjustment Programme (FINSAP) in 1990 as a vehicle to acquire the non-performing loans of distressed banks demonstrates his limited understanding of this issue. President Mahama, he argued, forgets that almost all the NPLs transferred to NPART in the 1990s were from 5 or so state-owned banks, with NPLs from the only three private banks constituting a mere 4%. Also, he does not mention that the same NDC government deemed it wise to close banks after the NPART had shown that it was not a panacea for dealing with banking sector crisis, hence the liquidation in Ghana of BCCI in 1999, and in 2000 the closure and liquidation by the Bank of Ghana of the Co-operative Bank and Bank for Housing and Construction, incidentally at a time when Mr. John Mahama was Minister of Communications and had to explain the reasons why those banks could not be saved by the then Government.
“ Today, does he not know that keeping “dead” financial institutions alive by public funds under the pretext of “too big to fail” destroys the financial system and the economy as a whole? Actually many of the financial institutions which had their licenses revoked could not even pay customers their deposits of as little as GHC300.”
“The Bank of Ghana under its current leadership has shown courage by taking the “bulls by the horns” and dealing decisively with the problems created under the Government of John Mahama, to avert the collapse of the entire financial system”
“The Government’s financial interventions in the cleanup exercise were necessary to help mitigate the socio-economic impacts of the failure of the relevant financial institutions. The Government’s actions have restored confidence in the banking system as customers of the defunct deposit-taking institutions continue to access their funds without difficulty. Through the Government’s interventions, deposits held by some 4,629,029 depositors have been saved, as well as over 3,000 jobs saved” Dr. Bawumia added.
“But where from John Mahama’s new found care for indigenous firms? Does John Mahama know how many indigenous firms collapsed under 4 years of dumsor? Why didn’t his government bail them out? Why this sudden love for collapsing indigenous firms? Where were the specific policies to support them? Does he know how many jobs were lost? What did he do about that if he cared so much about jobs?” he questioned.
Dr. Bawumia also stated that “We would all like to see the survival and growth of indigenous banks but we don’t want to have financial institutions that threaten the stability of the entire financial system whether they are indigenous or foreign. We would rather have a few well capitalized, liquid and sound banks than many weak, undercapitalized and illiquid banks that cannot effectively function as banks”.
“This problem was obvious in 2014 and before. It is a problem President Mahama and his government should have thought about. Even in opposition we pointed out on the basis of available information that at least 8 banks were likely to collapse. Yet nothing was done. When matters came to a head in 2017, the Bank of Ghana took a decisive step to resolve the situation. But today, the response of President Mahama is that he is going to set up a committee to tell him what to do. When you are faced with a real crisis, you take firm decisions. You don’t dilly dally and play to the gallery after the fact” Vice President Bawumia concluded.
