Banking sector consolidation is necessary and not destructive to the Ghanaian economy

The banking sector consolidation exercise took place in 2017

A financial analyst, Micheal Dawson, has justified the Bank of Ghana’s decision to clean up the banking sector, as part of measures to restore stability following the banking sector clean-up exercise.

He said the sector was on the brink of collapse, hence the decision of the banking sector regulator to undertake the necessary reforms.

“I can tell you that some depositors were not getting their funds back from some financial institutions. Some of the banks had also violated several banking regulations. Indeed, the financial system at the time was on the verge of total collapse.”

“The central bank had made it clear that the cleanup was based on poor business practices and low capital of banks and financial institutions. I am aware that some banks’ liabilities exceeded their assets.”

Mr Dawson made the comments following the assertion by Mensah Thompson, executive director of the Alliance for Social Equity and Public Accountability on Accra FM’s morning show, that banking sector reforms were destructive for the Ghanaian economy.

“I will say that the resilience that the banking sector has shown is due to the comprehensive financial sector reforms that took place before the coronavirus pandemic. You can imagine what would have happened if the banking sector reforms had not been made. We would have woken up one day to see a collapse of the Ghanaian economy,” explained the financial analyst.

“The measures taken have preserved the investments of around 4.6 million depositors and now there is confidence in the sector which is also crucial for the stability and confidence of the banking sector,” he added.

“I think the ASEPA boss doesn’t understand the problems in the banking space or have all the facts about the reforms that have taken place and are continuing to take place. I think we should commend the Bank of Ghana for being rather bold and courageous in undertaking these banking sector reforms.

In 2017, the BoG embarked on a clean-up exercise that saw the revocation of the operating licenses of some eight banks, 23 savings and loan companies and over 400 Specialized Depository Institutions (SDIs).

According to the receiver of some of the financial institutions, preliminary investigations revealed that most directors of the old financial institutions failed in their fiduciary responsibilities to customers and other stakeholders.