Professor of Finance at the University of Ghana Business School (UGBS) – Godfred Bokpin, Dean of the University of Cape Coast Business School – Prof John Gatsi, and Banking Consultant – Frank Kwachie, have pointed out that government is to be blamed for the losses incurred by banks on the back of the domestic debt exchange programme.
Although admitting that banks in the country are also to be blamed for the net losses recorded last year as they should have been more cautious in lending to Government, the financial experts noted that government should take the larger portion of the blame given the country’s current financial system.
According to the two academicians and the banking consultant, the country’s financial system has been designed to benefit the government and not the private sector, adding that: “given the country’s current financial system, it becomes difficult for banks to ignore the government if they want to be profitable.”
Prof. Bokpin and Prof. Gatsi are of the view that the country’s current financial system prioritizes the government rather than the private sector.
“The economy we are operating makes government too big to ignore if banks want to be profitable. The system has been created in such a way that it does not put the private sector in leadership as the main driver of growth.
“The financial system of the country has been designed to make government comfortable and support the inefficient and corrupt lifestyle of government at the expense of the balance sheet of the private sector particularly the banks, and no meaningful measures have been designed and undertaken to support the private sector to lead growth.”
Financial Experts
Banks Being A Creditor To Government Has Been A Threat To The Industry
More so, Prof Gatsi quipped that lending by banks in the country has been skewed towards the government rather than the private sector. This, he noted, is because of how the financial system and the economy at large is being managed.
“True lending practice by banks has been skewed towards the government which is occasioned by the way the economy is being run, though the banks knew lending too much to government was not good, it was better than lending to SMEs which were more riskier and increasing their NPLs than to government and that was why they still lent to government.”
Prof John Gatsi
Fifteen out of 21 banks that have released their 2022 Audited Financial Statement registered losses last year.
This record loss is a result of a difficult economic environment that triggered the Domestic Debt Exchange Programme or debt restructuring, impacting negatively on the operations of the financial institutions.
According to their 2022 Summary Financial Statements, most of the banks’ assets were impaired due to reduced coupon rates and the extension of the maturity period from five to 15 years, among others.
Consolidated Bank was the biggest casualty, recording about ¢2 billion loss in 2022. Indeed, the local banks were the biggest losers.
Most banks in the country have however, recovered swiftly in quarter one of 2023, recording some good profits.
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