The brewing banking sector crises is far from over, some financial analysts portend. This sector of Ghana`s economy has seen a lot of activity over the last couple of months. In its quest to clean up the banking sector, the Central bank has been busy; it has tended to focus predominantly on universal banks and many of the happenings have unfolding right before our eyes; the collapse of seven banks and possible withdrawal of licenses of some who may fall short of meeting the new minimum capital requirement and yet fail to merge with other banks.
The Non-banking Financial Sub-sector (NBFI)
The above however is not the end of the story as far as the wider financial sector is concerned; some non-bank financial institutions are going through turbulent times, particularly microfinance institutions and savings and loans companies. This sub-sector includes Microfinance Companies (MFCs), Micro Lenders Companies (MLCs) and Financial NGOs (FNGOs), and Rural & Community Banks (RCBs). These institutions play a critical role in Ghana`s economy, bringing banking to the doorstep of the Ghanaian populace and promoting financial inclusion.
Sadly however, there have been disturbing reports in the last few months of the inability of some customers to access funds and investments from some of these non-bank financial institutions. Issues of panic withdrawals have featured prominently. Some of the savings and loans companies are said to be in a “sorry financial state” at least in part because of the panic withdrawals that has hit many of them. The panic withdrawals are largely a spillover effect from challenges in the banking sector.
The Bank of Ghana has disclosed some startling statistics. It notes that of the total number of 566 licensed MFIs in 2018, 211 are active but distressed or folded up. Also, out of the total number of 141 RCBs, 37 are active but distressed or folded up.
In total, the Central bank estimates that 272 out of the 707 institutions in the sub-sector, representing 38.5% are at risk. This indicates that approximately GHȼ740.5 million is owed to an estimated 705,396 depositors of the distressed or folded up Microfinance Institutions (MFIs) and RCBs. In terms of significance, the deposits under distress form 8.81% and 52.49% of industry total deposits of RCBs and MFIs respectively.
The struggles of these institutions are manifested in a variety of ways, including severe impaired capital, inability to meet regulatory capital adequacy requirement, generally low asset quality and liquidity challenges. These have compounded and metamorphosed into real threats to the funds of depositors’ resulting in declining public confidence and undermining efforts to promote financial inclusion.
The Bank of Ghana
Will the Central bank crack the weep in the face of the enormous challenges that have wrapped themselves around many non-bank financial institutions? It appears It would; perhaps very soon. During a recent media engagement with the Bank of Ghana to review the health of the economy, the governor of the Central bank, Dr. Ernest Addison disclosed that “Savings and Loans Companies that are in serious financial distress would soon be liquidated”.