The current crisis facing financial institutions reflects key challenges confronting the Ghanaian economy as a whole, which some banks have fallen victim to, Martin Ofori, CEO of Crystal Capital and Investments Ltd. has said.
Reacting to the central bank’s ‘takeover’ of UniBank, Mr. Ofori said although internal factors like weak corporate governance and risk management frameworks have often been cited for destabilising the banks, challenges like interest rates and liquidity are more to blame.
“A lot of the issues may come from the external side – how the entire economy is performing, because if the economy is not faring very well over a certain period of time, it bubbles up; it gets to a point where you don’t have enough control.
“So, the strength of the financial institutions reflects – to a large extent – the economy’s strength: the external environment that impacts the institution,” the former MD of First Atlantic Bank said.
The financial crisis that hit the global elite of economies in 2007 and 2008 – particularly the United States and most European countries – was a bubble in the reflection of the world economy.
However, Ghana – unlike those economies affected by the global economic crisis – does not have sophisticated securitisation of financial instruments or products; so, the few things that impact the economy greatly have to do with macroeconomic indicators like exchange and interest rates and liquidity.
“So, if you look at our liquidity and how it impacts on the administration of credit, you will find that businesses borrow money and are not able to repay the loans.
“So, these loans turn out to be non-performing and then the banks have to make provision for the repayment – and that will affect their profit margins and impact their capital adequacy ratio, and eventually their liquidity.”
The country’s banking sector, particularly indigenous financial institutions, is said to be in distress due to weak capital adequacy.
Late last year Capital Bank and UT Bank collapsed, with their assets being acquired by GCB Bank. This was followed by last week’s ‘temporary’ takeover of UniBank Ghana by the central bank, after it was declared insolvent.
According to the Bank of Ghana, several financial institutions – including some 272 Rural and Community Banks, as well as Microfinance Institutions – are currently in distress.
Source : thebftonline.com
