Time has once again vindicated a former Deputy Governor of the Bank of Ghana and now Vice President of Republic, Dr Mahamudu Bawumia over his ‘prophesy’ that 8 local banks were at the verge of collapse.
Capital and UT Banks, gave life to the forecast of Dr Bawumia when they were taken over by GCB Bank Limited last year.
Just yesterday, five banks including Unibank collapsed and were put together as Consolidated Bank Ghana Limited to managed with a direct oversight responsibility from the Central Bank.
It would be recalled that in 2016, Dr Bawumia warned that eight banks in Ghana risks collapse due to the continuous hikes of bad loans on their books.
“The asset quality review of banks, conducted in 2015, shows significant vulnerability of banks to current economic conditions and that if the affected banks were to fully provision for all the bad loans, a significant number of them will collapse.
In fact eight banks were identified to exhibit significant weaknesses with capital adequacy ratios of below 10 percent and some below 5 percent and nearing collapse so it is a real problem.” Dr Bawumia stated at a lecture on the topic, ‘The State of the Ghanaian Economy – A Foundation of Concrete or Straw’.
The identity of the eight were not known at the time but industry players cautioned their collapse will destabilize the financial industry and in turn the economy.
The Bank of Ghana, in its first financial stability report for 2016 revealed that bad loans on the books of commercial banks in the country increased by 14.9 percent to 4.52 billion cedis in 2015 against the 2.72 billion cedis recorded in 2014.
The central Bank had admitted the growing spate of nonperforming loans on the books of banks is the key risk facing the banking sector. Dr Bawumia then believed the development is troubling.
“Bad loans in the banking sector have risen significantly; economic and financial data from the central bank shows that NPLs have risen sharply from 11.2 percent in May 2015 to a critically high 19.3 percent in May 2016. The level of impaired loans in one of the largest commercial banks has quadrupled and the situation is becoming widespread in the banking sector. Available information show that due non-payment of these loans, the banks have declared 2.4 billion cedis of outstanding debt stock of loans as a complete loss and are making provisions against profits. Certainly these resources could be channeled to create more industries in our communities.”