In an interesting revelation, the Governor of the Bank of Ghana, Dr. Ernest Yedu Addison has disclosed that the revocation of the licenses of two Ghanaian indigenous banks, Capital and UT banks was a result of strict directives from the International Monetary Fund (IMF).
Dr. Addison reveals that the IMF required the revocation of the two banks in 2017 as part of what he describes as prior action or conditions for the then-new NPP government to re-enter into negotiations on the then-ongoing bailout program.
The Central Bank revoked the licenses of these two banks in 2017 opening the way for the massive financial sector reforms which subsequently led to the revocation of numerous banks and mergers.
Dr. Ernest Addison who was speaking at the Governor’s Day Event organized by the Chartered Institute of Bankers on Saturday further revealed that the revocation became inevitable as the IMF insisted that it won’t even organize a board meeting on Ghana’s case unless the two banks have been dissolved.
Considering how renegotiating the IMF deal was crucial to the government, the Central Bank had no option but to meet the demands of the Bretton Woods institution.
“So when this outgoing government took over and tried to bring the IMF program back on track, there are a few requirements which the IMF calls the prior actions. You have to do this, you have to do that, you have to do this. Otherwise, you are not even going to organize a board meeting to discuss Ghana and disburse any funds to you,” the Governor narrated.
He continued that, “And guess what? One of the prior actions was to dissolve UT and Capital Bank. The Ghanaians had never or they hadn’t seen that in a long period of time. So obviously, people were shocked when the licenses of those two banks were pulled. I remember the bankers’ dinner that year because there were quite a few other banks that also sort of had borderline cases. You could hear a pin drop in the room and the tension.”
The Central Bank in carrying out the exercise in 2017 explained that UT Bank and Capital Bank were deeply insolvent. Their liabilities, the banks said, exceeded their assets, putting them in a position not to be able to meet their obligations as and when they fell due.
Despite repeated agreements between the Bank of Ghana, UT Bank, and Capital Bank to implement an action plan to address these significant shortfalls, the owners and managers of UT Bank and Capital Bank were unable to increase the capital of the banks to address the insolvency.
Consequently, to protect customers, the BoG decided to revoke the licenses of UT Bank and Capital Bank under a Purchase and Assumption transaction. The customers of the two banks were absorbed by GCB Bank.
Commenting on the exercise, Governor Addison remarked that the exercise has been really beneficial to the country’s financial sector
He said, “We’ve come a long way, you know, trying to clean up the system of weak and insolvent banks, you know, sort of bringing in new capital requirements to strengthen the banks.”
