By Rafiq Raji, PhD
Spread net wider
Incidentally, it is the non-bank but quasi- financial institutions that could now be even more problematic. Menzgold, a gold trading firm, is owing its customers huge sums of money that it likely would not be able to pay back. The firm’s chief executive Nana Appiah Mensah is now to face prosecution for myriad financial offences. But how would Menzgold customers get their money back?
Anxious customers would like the Bank of Ghana to intervene like it did for banks. It declined, adding how it warned citizens severally about the risks involved in patronising the firm which is now widely believed to have been operating a ponzi-type scheme. The relevance is whether the anger of Menzgold’s customers could create another crisis of confidence that could potentially rub off on the banking sector. In any case, the Bank of Ghana is increasingly getting the blame for not doing more.
Just like the banks that were found to be problematic had the patronage and endorsement of top politicians, Menzgold did as well. With almost 2 million Ghanaians invested in Menzgold to the tune of $400 million, it is highly unlikely the central bank would be able to escape responsibility both for the crisis and indeed for fixing it.
The Menzgold example further highlights poor regulatory vigilance on the part of the central bank. Clearly, even as Menzgold was not directly under its jurisdiction, the Bank of Ghana could not have been ignorant of the potential disruption the firm’s activities could cause to the financial system should things go south. In other words, just as the banking crisis was as a result of lax supervision, the Menzgold crisis is likewise. And until the regulator is better positioned and sufficiently willed to monitor and guard the financial system, another crisis may not be too far away.
GAT could be problematic
Already, there is talk about the propriety of GAT. Could more local banks have been rescued? Some wonder why GN Bank was not similarly rescued, for instance, leading to accusations of foul play. In remarks to the media on the issue, BoG governor Ernest Addison says the central bank did not choose the banks to be rescued: “We have not played a direct role but we supported the initiative”.
Members of parliament from the National Democratic Congress (NDC) party take a different view, saying in a statement released in January that “there has always been the suspicion that the NPP [New Patriotic Party] government led by Nana Akufo-Addo is hard on businesses owned by people perceived to be sympathisers of the former NDC administration.”
It is also wondered why in the first place hard-earned pension funds would be used to rescue banks that could not secure funds otherwise. Labour unions have raised concerns. In response, the finance ministry issued a statement in January to clarify the purpose of GAT. “The GAT arrangement is to support solvent and strong indigenous banks to meet the new minimum capital requirement and is not a bailout programme…”.
There is also the issue of the pensions law which stipulates that fund managers should not invest more than 5 percent of pension funds in collective investment schemes, which most industry stakeholders believe GAT is. They would be breaching this regulatory limit if they collectively invest up to 2 billion cedis in the SPV.
This should not be a problem, however, as the National Pensions Regulatory Authority (NPRA) is expected to grant special approvals to interested pension fund managers, some of which have already started entering into agreements with GAT. There could still be legal troubles ahead for GAT and the pension funds that subscribe to its instruments regardless.
Prosecute erring officials
It is abundantly clear the banking crisis occurred with the connivance of banking supervision staff at the Bank of Ghana. And unless those found wanting are punished, there is likely to be a recurrence. Osei Gyasi, head of banking supervision at the BoG told Joy News, a reputable television station, in early January that “the work of the ethics department [investigating the matter]…is almost completed and very soon the final report will be issued to management”.
And the Economic and Organised Crime Office (EOCO) has reportedly questioned persons of interest already. These are all encouraging steps. Still, scepticism remains about whether the authorities would follow through and prosecute the big and small fish involved. The culprits must be punished for full confidence to be restored.
An edited version was published in the first quarter 2019 issue of African Banker magazine