In the morning of Monday, August 14, 2017, Ghana’s financial walls came down after the Central Bank announced the takeover of two indigenous banks, Capital and UT banks. The announcement shook the nation.
The Governor of the Bank of Ghana, Dr Ernest Addison explained the banks, earlier lauded for their successes, were financially distressed to exist as autonomous institutions. He revoked their licenses and auctioned them to the GCB Bank.
A year later, five others have followed due to liquidity challenges, bringing to seven the total number of banks that have collapsed. Similarly, their operations have been taken over by a new bank created by the government, the Consolidated Bank of Ghana Limited. They have simply been consolidated.
The question many financial experts and ordinary Ghanaians have attempted to answer falteringly is: How did we come to this place?
Blaming the Central Bank for the banking crisis has proven to be the easiest course for many people, including politicians. But is the growing culture of merely blaming and not fixing the problem the right way to build a strong nation?
Banking crisis a puzzle or mystery?
In his 2007 article in the Smithsonian Magazine, American security expert Gregory F. Treverton drew the distinction between puzzles and mysteries. He explained puzzles are problems that can be solved with the availability of the right information. But mysteries require judgment, analysis, and assessment of the problem at hand as a result of too much information or noise. Puzzle-solving is hampered by a lack of information whereas mysteries grow out of too much information.
The collapse of US energy-giant, Enron has been categorised by writer Malcolm Gladwell as a mystery. In his New Yorker article, Mr Gladwell noted U.S. law enforcement investigators and prosecutors treated the matter against former Enron boss, Jeffrey Skilling as a puzzle.
“Skilling, the architect of the firm’s strategy, was a liar, a thief, and a drunk. We were not told enough,” he wrote about the flaws with the thinking of the investigators. But Mr Gladwell had noted a year before the scandal broke that several financial analysts had treated Enron as a mystery. This was arrived at after they parsed the company’s voluminous financial statements and quarterly findings.
Reports that Enron made $111billion in revenues in 2000 was found to be pure lies. In the end, the company ranked by Fortune among the “most admired” in the world collapsed and its CEO received the harshest sentences ever given for a white-collar crime.
The cause of Enron’s misfortune was not the lack of information, but too much of that to the point of creating a discordant tune in the ears of the regulators. The summary of Enron’s complicated financial deals was estimated to be a little over a hundred thousand pages.
Banks collapse was predicted
In 2016, Dr Mahamudu Bawumia, the then running mate of presidential candidate Nana Addo Dankwa Akufo-Addo learnt of the imminent collapse of eight banks due to the rise in bad loans as a result of the then government’s economic mismanagement.
“Economic and Financial data from the Central Bank, show that non-performing loans have risen sharply from 11.2% in May 2015 to a critically high 19.3% in May 2016. For example, the level of impaired loans in one of the largest Commercial banks, have quadrupled and the situation is becoming widespread in the banking sector. Available information shows that due to non-payment of these loans, the banks have declared GH¢2.4billion of the outstanding stock of loans as a complete loss and are making 27 provisions against profits,” the former deputy Governor of the Central Bank said in a famous speech prior to the 2016 general elections.
He didn’t predict the collapse of the banks. The Central Bank did in its reports. The information Dr Bawumia regurgitated to Ghanaians was available to the officials of the Bank of Ghana, the government, parliament, Finance Minister, financial experts, economists, the Economic and Organised Crime Office (EOCO), the Bureau of National Investigations (BNI) and the public.
Why didn’t they act? The answer is that these institutions and individuals lack the analytical skill to competently parse the documents they were furnished with. There was too much information for them to make sense out of it.
The Central Bank’s Asset Quality Review of Banks in 2015 pointed to the vulnerability of banks to the economic conditions prevailing in the country at the time. About eight banks were identified to exhibit significant weaknesses, with capital adequacy ratios below 10% (some below 5%). In short, the banks were on the verge of collapse. When the same report was reviewed and updated in 2016, it showed the same weaknesses.
If you looked at the BoG reports and the independent reports of the various banks, you would conclude that the banks did not make full disclosures of their financial situations to their shareholders and the regulators. But that would be wrong.
The Central Bank and shareholders of the defunct banks knew about the danger but they failed to thwart it. The cause? It was either the regulator was incompetent in analysing the data it generated or the greedy few at the collapsed banks chose to gloss over their looming danger.
Banks collapse was a mystery
The collapse of the seven banks was a mystery faultily treated as a puzzle. The crisis came about not as a result of the lack of information but rather the overload of information. We knew the banks were not doing well. We saw this coming. And there were reports that hinted at their collapse due largely to bad loans and economic mismanagement.
So why didn’t we prevent it?
I think the answer to this question lies in the way we think and work in this country. We are sloppy, non-analytical and tend to take many things for granted, including our safety.
In a Cornell Law Review article in 2004 on the Enron saga, Yale law professor, Jonathan Macey wrote that there is the need for a set of financial intermediaries, “who are at least as competent and sophisticated at receiving, processing, and interpreting financial information” as the companies they are auditing.
The seven banks collapsed because their shareholders, BoG personnel, Finance Minister, government’s Economic Management Team and financial analysts did a poor job in analysing and interpreting the financial data. The crisis exposed their weakness.
Already an estimated GHS12.7billion is reported to have been spent by the state on the seven collapsed banks and their new owners, the GCB and Consolidated Banks. On top of it is the job losses. Labour experts have predicted that at least over 3000 employees of the defunct banks and others would lose their jobs before the end of 2018.
When is enough, really enough?
The easiest thing to do in times of crisis is to fish out someone to hang and the Central Bank appears to be the cheapest target. But what about the Finance Minister, parliament, shareholders of banks and the government who receive these documents quarterly? If the Bank of Ghana failed to see the danger why didn’t they?
Perhaps it is time we looked at the recruitment processes at those institutions. We need to employ personnel who are competent and sophisticated at receiving, processing and interpreting financial data.
There are too many incompetent people clothed with the power to decide the destiny of this country. These people lack the analytical skill to thoroughly interrogate documents that are forwarded to them. And because of this serious crack in the system, the greedy few are exploring that to their benefits.
We need to learn to speak truth to power and champion the interest of the nation at all times. The timidity of some Ghanaians is nauseating to the point of stifling the country’s progress.
Kwabena Brakopowers is a journalist, novelist, and essayist whose works focus on politics, migration, social situation, economic and environmental issues. He spends his time writing either in Accra or Monrovia, where he calls his second home. He could be reached at Brakomen@outlook.com or visit www.brakopowers.com to read about him.