Ghana to compensate investors of failed asset management companies

GHANA – The Government of Ghana has revealed that it has committed GH¢3.1 billion (about US$537 million) toward supporting investors in failed asset management companies regulated by the Securities and Exchange Commission (SEC).

Last year, in Novermber, Ghana’s SEC revoked the licenses of 53 Fund Management following the companies’ failure to return client funds which remain locked up.

SEC noted that the revocation was also implemented because some of the asset management companies had folded up their operations and therefore did not meet the threshold required for their licenses to maintained.

The government further revealed that as of the end of the first quarter of 2020, a total amount of GH¢13.6 billion has been spent on the resolution of failed financial institutions.

The funds have been particularly used in compensating clients of failed Specialised Deposit-taking Institutions (SDIs) and Micro Finance Institutions (MFIs).

A significant portion of the funds was also spent in the establishment of the Consolidated Bank Ghana Limited (CBG), as well as the capitalisation of the Ghana Amalgamated Trust (GAT).

The additional GH¢3.1 billion support to investors who fell victim to the collapse of the fund management companies, the total amount used by the government to clean the financial sector would be GH¢21.60 billion (about US$3.74 billion).

Ghana embarked on a regulatory crackdown on poor business practices and weak capital positions in Ghana’s banking sector that resulted in a series of market exits since August 2017.

In what the Bank of Ghana termed as a financial sector clean up, the authority announced a new minimum capital requirement, requiring all universal banks to increase their minimum paid-up capital to GHS400m ($77.5m) by December 31, 2018.

The result of this regulatory intervention was a number of markets exits and mergers, leading to a significantly altered banking landscape with the licences of nine banks being withdrawn by the BoG on the grounds of insolvency.

The clean-up led to the creation of Ghana’s second-largest branch network in the country is now operated by the Consolidated Bank of Ghana.

Consolidated Bank of Ghana is a government-owned institution formed in 2018 to control the assets and liabilities of five distressed institutions: Construction Bank, Beige Bank, Royal Bank, UniBank and Sovereign Bank.

A similar clean-up process, was extended to the microfinance and non-banking financial institutions sector resulting hundreds of licence withdrawals.

The clean up on Ghana’s financial sector resulted in a smaller but more sustainable banking industry, though this has come at a price which is now running into over US$3 billion or an equivalent of 3% of the country’s total GDP.

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