Government has not intentionally collapsed banks – Financial Minister

Accra Mr Ken Ofori-Atta the Financial Minister has stated that the government has not deliberately collapsed banks, but positioned them well to support the economic growth agenda of the government.

He said following the successful completion of reforms in the sector, which begun in August 2017 and ended in January 2019, had become much resilient and well positioned to support the economic growth.

Banks are beginning to refocus on their core mandate of financial intermediation based on their strong capital base after the recent completion of the re-capitalisation exercise, he said.

He said a well-capitalised, solvent, liquid, profitable and resilient banking sector had emerged with improved financial soundness.

He said this when he presented the Budget Statement and Economic Policies of Government for 2020 to the Honorable House on Tuesday in Accra.

He said even with fewer banks, asset growth within the banking sector in 2019 continued to be robust, underpinned by sustained growth in deposits and higher capital levels, while credit had continued to be recover compared to the same period in the previous year.

Mr Ofori-Atta said at the start of the reforms, total assets were GH89.1 billion for a sector that had 36 banks, and two years after the reform process started, total assets increased to GH115.2 billion at end August 2019 with only 23 banks.

Additionally, total deposits have improved from GH55.7 billion to GH76.0 billion over the same comparative period, reflecting a stronger deposit base owing to more trust and confidence in the banking sector with fewer, but stronger banks, he said.

He said the sector’s solvency remained strong, with the Capital Adequacy Ratio, even under the more stringent capital requirement directive under the Base II/III framework, well above the new regulatory minimum of 13 per cent.

He noted that Banks’ profitability was also enhanced with a significant pick-up in profit after tax in 2019 compared to the previous year and prior to the reforms, the specialised deposit-taking institutions (SDI) sector was plagued with acute liquidity and insolvency challenges.

He said their continued existence posed severe risks to the stability of the financial system and to depositors and as a result, in two separate clean up exercises, the licenses of the insolvent institutions were revoked in order to curtail a spillover of the weaknesses to other sectors of the financial industry.

He said the insolvent SDIs comprised of 23 savings and loans and finance house companies, and 347 microfinance companies and Non-Bank Financial Institutions comprising of 39 micro credit companies, one dormant leasing company and one dormant remittance company were also resolved in May and August respectively.

This will safeguard the financial system against potential contagion and weaknesses in the SDI sector, which threatened to erode the gains made in the banking sector, he said.

He said the completion of the exercise within the Banks and SDIs sector in August was timely and paved way for the commencement of the Ghana Deposit Protection scheme in December 2019 to protect the national budget from costs arising from banking sector failure.

He said the scheme, supplemented by effective regulation and supervision by the Bank of Ghana, and the work of the Financial Stability Council, will go a long way to make our financial system more resilient and supportive of our efforts to foster inclusive socio-economic growth.

He assured that the central bank would continue to pursue policies and strengthen supervision to ensure that the banking sector remained well-capitalised, solvent, liquid and profitable and to also ensure that significant gains recorded in the aftermath of the reforms.

Credit risk management practices and loan recovery efforts will be stepped up to minimize overall risks in the banking sector. He said.

Source: Ghana News Agency