Chief Executive Officer of the Ghana Association of Banks, John Awuah, has underscored the vital role of the banking sector’s clean-up in confronting the challenges of the COVID-19 pandemic and subsequent economic turmoil.
Speaking on JoyNews’ PM Express, he asserted that the clean-up was a proactive measure to ensure stability and functionality in the financial industry.
Mr Awuah highlights the sector’s significant contribution to Ghana’s successful negotiation of an IMF-assisted program, attributing this achievement to its resilience.
He notes that the 2017 clean-up acted as a critical shock absorber, mitigating adverse impacts and enabling the industry to navigate the economic downturn and pandemic complexities.
“The banking sector clean-up provided a shock absorber for the industry, and that perhaps is the key enabling force that helped the banks to come through these difficult periods that we’ve had,” he said.
Former Finance Minister Ken Ofori-Atta oversaw the banking sector clean-up from mid-2017 to January 2020, aiming to restore confidence in the banking and specialized deposit-taking sector. The government cited this action as one of the contributing factors to the country’s high debt stock.
The clean-up resulted in the reduction of banks from 34 to 23, with 347 microfinance institutions, 15 savings and loans companies, and eight finance houses having their licenses revoked. Some commercial banks were merged to form the Consolidated Bank Ghana Limited, while state-owned GCB absorbed others. The Securities and Exchange Commission (SEC) also revoked the licenses of 53 Fund Management Companies due to corporate governance lapses.
The total estimated cost of the state’s fiscal intervention, excluding interest payments, from 2017 to 2019 was GH¢16.4 billion. Vice President Dr. Mahamudu Bawumia claimed in 2020 that the government spent about GH¢21 billion on the banking clean-up exercise.
However, the clean-up faced significant criticism, with the opposition party suggesting that the closure of some banks was politically motivated and led to massive job losses. Critics argued that the government could have spent less by saving the banks instead of closing them down. Some affected financial institutions also sued the government over the action.