Ayariga warns BoG against using GAT to bailout banks

The Member of Parliament for the Bawku Central constituency, Mahama Ayariga, has in a strongly-worded letter, cautioned the Governor of the Bank of Ghana, Ernest Addison, against illegally expropriating the property rights of owners of domestic, private banks.

The letter seeks to address bondholders concerns regarding the Domestic Debt Exchange Programme.

The letter was copied to the Speaker of Parliament, the Attorney General and Minister of Justice, the leadership of Parliament, the Chief Executive Officer (CEO) of the Ghana Bankers Association, the Board Chairmen of all banks in Ghana, the Country Director of the World Bank, as well as the CEO of the Ghana Amalgamated Trust (GAT).

Mahama Ayariga stated that the banks will face capitalization and liquidity problems given that they will not receive timely and appropriate coupon payments from government.

Per the deal, government is to provide clarity on the operational framework and terms of access to the GH₵15 billion Ghana Financial Stability Fund (GFSF).

He asserted that the directive of the Minister of Finance, Ken Ofori-Atta, to banks he has emasculated, to approach the Ghana Amalgamated Trust Plc (GAT) for support from the Ghana Financial Stability Fund (GFSF) opens them up to a takeover by investors in the GAT, if the Ghana Financial Stability Fund is not wholly publicly funded.

The Bawku MP further contends that political patronage and nepotism will inform the ultimate purchase of the shares in the private banks, once GAT begins to dispose off these shares to realize the investments made in those banks [if GAT is not publicly funded].

Mahama Ayariga added that the policy and strategic options chosen by the Finance Minister enables the illegal and unconstitutional expropriation of the private property of the present owners of domestic private banks and, possibly, private international banks operating in Ghana.

He called for the mobilization of the available intellectual competencies and political forces to defend the bona fides property rights of owners of private banks in Ghana.

“Not to do so with a sense of urgency will constitute the greatest dereliction of duty of our political class. And the collapse of present owners of these banks and the takeover of these banking interests, similar to what was orchestrated in the PDS saga and the intended ‘Agyapa’ deal, will capriciously, unlawfully and criminally transfer enormous wealth and concentrate it in the hands of those who might enjoy the patronage of the Minister of Finance,” he noted.

This according to him could disorient the nation’s democracy, and potentially destabilize our politics, as the history of the recent banking sector “cleanup” remains fresh in the memory.

Background

External factors that negatively affected the economy

COVID-19, Russia-Ukraine war, soaring energy and food prices, higher interest rates, a strong dollar and a global slowdown negatively affected the economy.

Ghana seeking $3 billion loan

Ghana and the International Monetary Fund (IMF) have reached staff-level agreement on economic policies and reforms to be supported by a new three-year arrangement under the Extended Credit Facility (ECF) of about $3 billion.

But, the IMF has made it clear that the Board approval of the deal is contingent on a successful debt exchange programme.

The Minister of Finance therefore announced a debt restructuring programme.

Total public debt is GH₵578.7 billion in November 2022 which is unsustainabel.

Total external debt stood at about GH₵383 billion as at November 2022.
Domestic debt constituted GH₵195 billion.

The Domestic Debt Exchange Programme targets 80% threshold of GH₵137 billion.

Ghana Securities Industry Association (GSIA), Ghana Association of Banks and the Ghana Insurers Association have  agreed to participate in the programme for institutional bondholders.

As at October 2022, a breakdown of holdings of bonds are Bank of Ghana – 7%, banks-41%, pensions-19%, securities-5%, insruance-3%, firms and institutions-8%, foreigners-12%, individuals-6%.

Ayariga said “This involves reduced coupons and deferred payments. Definitely, the liquidity, solvency and capitalization of these banks will be negatively affected. This also creates a problem for the financial sector as individual investors will be scared.

Coming after the recent banking sector “cleanup” and the collapse of some banks it generated, people will shy away from depositing their funds in bank accounts. Our entire financial sector is in danger of collapsing.

The letter to the Governor and those copied seeks to point out the danger of the remedial prescription of the Minister for Finance.