There have been more than enough hints of the merger since the last budget was read.  The government stated its very good intentions of capitalizing a national development bank with $500 million.  The essence is to empower a local bank to take on big ticket transactions and obviously shore up the entire banking industry as well.  Definitely a very good idea.  However, responses by most commentators and experts pointed to the fact that creating another bank was one too many.  This is when the hint was dropped that two national banks would be merged to form the national development bank.  The two names that have come up are National Investment Bank (NIB) and Agricultural Development Bank (ADB).   It has been reported that the majority shareholder of ADB, Belstar Capital, has begun proceedings to pull out of the bank by selling off its shares.   They are needed to ‘give their blessings’ for the said merger to happen.

This article disagrees with the proposed merger.  It is on the backdrop of the different mandates of these two banks.  It could be noted that both banks (ADB & NIB) have diverted from their original mandates and settled comfortably into retail banking.  Both banks currently positioned in retail banking makes the merger easier if they are to continue in retail banking.  However, the factors below discusses setbacks that may never be resolved in the life time of the merged development bank.

Core Mandates

The National Development Bank would probably be expected to support infrastructural developments and agriculture.   The inherent potentials in these two areas are too enormous for one organisation to carry.  If really the government is serious about tapping into the full potentials and deriving the full benefits, both sectors should have their own dedicated banks to back them.  The primary factors of production (land and labour) are so much in an enormous untapped quantities for both agric and development.  The enormity of latent potential would require concentrated strategic and operational resources to effectively and efficiently mine their potential.  Putting the two tasks on one ‘government-backed’ organisation is calling for high inefficiencies in achieving both mandates.  If the platform already exists for a bank to back agriculture why not empower (capitalize and restructure) and regulate the bank ADB to perform just that mandate and likewise for the NIB to back investments into infrastructure.  If the bank has veered of its mandate, it is more a matter of calling for restructuring to realign the banks to their core mandates.  This is about the principle of strategic focus.  Is it not a similar principle applied by the current President, for which he created a lot more ministerial appointments with some ministries having double deputies?  It was so that we can have specific ministers focus and oversee some special initiatives for results.  This very case should not be treated differently.  Our opinion is for each bank to be well capitalized, restructured and regulated to carry out its core mandate.

Also Read – Policy Rate at 20%; Why Borrowing Rates would still be High

Government has no Business Doing Business

Adding to the first factor is that fact that ‘Government has no business doing business’.  This is proven comparing outputs of the private sector to the public sector.  Merging the two banks would be creating another humongous inefficient organisation with the typical public service attitude that is going to be at the beck and call of the government.  Both organisations are the playgrounds of their own internal corporate politics and the more destructive politics in government.   Merging the two banks would just be creating a bigger platform for that kind of ‘play’.  In effect another government bank is created whose leadership and strategic direction changes every 4 or 8 years when there is a change in government and takes 6-12 months to install a board if government changes.

It is no secret that this practice has wreaked a lot of state owned organisations and businesses and this so called national development bank will just be another one of them.  If the Central Bank has been a victim how much less its subject.  The fear, which will most likely materialize, is that the capitalization money of $500 million plus other precious resources are pumped into merging the banks and yet the nation would not receive the expected return.

It is a case of just fixing what is broken with these two banks to enable them to perform their mandates.  It is a case of governments becoming more disciplined in their dealings with these organisations.  Creating a big local bank is certainly a great idea, but with the empirical record of how governments have created, ran and maintained businesses across the political party divides, this national development bank idea may just have to be thought through again and possibly shelved.

Must Read Too: 2nd Deputy Governor of BoG officially steps down

www.ghanatalksbusiness.com