Recapitalization positioned banks to weather the pandemic storms – Addison

Governor of the Bank of Ghana(BoG), Dr Ernest Addison has said the decision to clean-up the financial sector prior to the pandemic, together with the COVID-19 relief measures introduced by the central bank in the wake of the pandemic, positioned banks to weather the storms associated with the pandemic and sustain lending to support economic activity.

Some nine local banks, 23 savings & loans companies, 347 microfinance institutions, 39 finance houses and 53 fund management companies were closed down in the financial sector clean-up exercise.

Two banks, UT Bank and Capital Bank, were first taken over by GCB Bank in a purchase and assumption agreement.

Seven others, the Sovereign Bank, The Beige Bank, Premium Bank, The Royal Bank, Heritage Bank, Construction Bank and UniBank had were also added to the Consolidated Bank Ghana.

Dr Addison however said despite the supporting role of banks and Specialized Deposit-taking Institutions (SDIs), there are shortcomings on the financial landscape which has a direct bearing on growth. 

Banks and SDIs focus on short-term financing for commercial purposes with little support for long term financing needed to accelerate economic development and transformation. 

He said available data show that, less than 15 percent of loans granted by banks are for 5 years or longer, making investment in long gestation projects, especially for Small Mediumsized Enterprises (SMEs) unviable. 

“Also, the share of bank credit to the agriculture and manufacturing sectors hover around 4 percent and 8 percent, respectively. This data shows that only a small share of lending goes to keys sectors such as agriculture and manufacturing relative to their shares in GDP and employment,” Dr Addison said during the offoical launch of the Development Bank Ghana (DBG) in Accra on Tuesday June 14.

“This therefore,” he added “necessitates the establishment of modern market-oriented development finance institutions, which will focus on providing medium to long term financing to support key sectors of the economy. This is what DBG brings on board.”

President Nana Addo Dankwa Akufo-Addo during the launch of the DBG urged the bank to partner with the private sector, and work with them to provide access to long term funds, access to markets both domestic and foreign, and skills developments.

He said the Bank will support all banks in the economy to have access to long term funds, including the National Investment Bank, the Agricultural Development Bank and the Ghana Exim Bank.

“It will also support private equity funds, and other capital market firms to have access to our bond market, and facilitate equity financing for SMEs,” the President assured.

He further stated that the Bank will partner research institutions to undertake sector research, support innovation centres and business accelerators, adding that “it will ensure that the requisite capital is directed towards business ideas with the most potential for growth and job creation, under the financial services ecosystem”.

He was delighted that the Bank has taken off despite what he described as unfortunate comments made about the plan for its creation.

“Today’s event is the culmination of years of painstaking efforts undertaken by the Akufo-Addo government to strengthen the infrastructure ,the transformation of the Ghanaian economy for private sector led growth.

“This launch comes on the heels of some unfortunate, unforgettable commentaries that accompanied the process leading to the establishment of the bank.

“A year on, the Development Bank Ghana has seen the light of the day as its foundation will help spearhead the vision of moving our nation, the situation beyond aid which involves positioning the private sector to take the lead in the socio economic transformation of our country and create quality jobs of our young people.

“The idea of setting up the Development Bank Ghana was indeed announced in the 2017 budget statement and economic policy when I first assumed office. It is one of the many policy initiatives that my government has come up with to help transform the Ghanaian economy. The overriding objective is to make long term funding available to the private sector and develop the ecosystem for market access technology and innovation,” he said.

Source: 3news