Reduction in number of indigenous banks unhealthy for economy – IEA

The Institute of Economic Affairs (IEA), an economic policy think tank, has said the result of the financial sector clean-up carried out by the Bank of Ghana which saw a reduction in the number of indigenous banks, has left the country’s financial sector in an unhealthy position.

Banks operating in Ghana reduced from 35 to 23 after the clean-up.

The institute stated that although the financial sector appears to be making a recovery, existing conditions may not guarantee a full recovery.

Speaking at a press conference on Tuesday, February 25, a Senior Economist at the Institute, Dr. John K. Kwakye, urged the government to operationalise the Depositors’ Insurance Scheme to prevent a re-occurrence.

“Most of the banks that have collapsed were indigenous Ghanaian banks. And the point I am making is that, with their collapse, it looks like the indigenous ownership of the banking industry has decreased. In fact, this is unfortunate since indigenous ownership is key to the overall health of the economy,” Dr. Kwakye said.

The Bank of Ghana’s two-year banking clean-up exercise saw the closure of nine local banks over various regulatory breaches. They include UT and Capital banks which were acquired by GCB Bank in a purchase and assumption transaction in 2017.

In 2018, five banks including Beige, Royal Bank, Construction Bank, Sovereign Bank, and uniBank were collapsed and merged to form the Consolidated Bank. Two other banks, Heritage and Premium banks, also had their licenses revoked and added to the Consolidated Bank.

According to Dr. Kwakye, the negative effect of the clean-up has led to questions being raised about whether a different approach could not have been adopted in the reforms.

“This is a question that comes up. People have said, couldn’t the BoG and government have approached the reforms differently? The idea of establishing a Deposit Insurance Scheme has been mooted and it is not clear whether the scheme is fully functional, otherwise they could have fallen on those funds to repay depositors,” he stated