Mother Of All Financial Scandals Exposed

Bank Of Ghana SWINDLES GCB ?101BN
The management of the Ghana Commercial Bank (GCB) have been scratching their heads over the past few weeks, wondering how they allowed themselves to be sucked into a financial transaction with the Bank of Ghana (BoG) that cost the GCB ?101 billion.

The amount is a 20 percent discount that the BoG charged GCB for swapping long term bonds into treasury bills and later converted into cash. Ironically, it was the Central Bank, working in concert with the Ministry of Finance and the Ministry of Energy, who advised the GCB to enter into the transaction as a last resort to again bail out the Tema Oil Refinery (TOR).

After scooping that huge margin of ?101 billion, the BoG is now telling GCB to keep its mouths shut and lick its wounds quietly.

The management of GCB will have none of it, and are mobilising all their arsenals to recoup every single Cedi of the amount.

As a first step, GCB has decided to debit the account of TOR with the ?101 billion, a move which will swell up the already over-flowing overdraft of the oil refinery company. Our investigations reveal that the GCB, in their resolve to retrieve the amount at all cost, have written to the BoG, urging the Central Bank to convene a tripartite meeting by next Monday for the two banks and Government to clean up the murky transaction.

What really happened? In 2001, a substantial portion of the TOR debt to GCB was converted into five-year bonds by the BoG, acting under the direct instructions of the Ministry of Finance. This was referred to as TOR bonds.

The BoG considered and accepted the TOR bonds as part of the secondary reserves of GCB. In this way, the GCB managed to satisfy the reserve requirements of the Central Bank.

However, the ever-increasing loans to TOR and their inability to repay in spite of full recovery of petroleum prices, led in May this year to further conversion of more TOR loans with the GCB into more bonds.

Investigations conducted by The Weekend Heritage have revealed that by May this year, GCB's working capital had dwindled to a level that made it difficult for them to support more letters of Credit (LC) for TOR's importation of crude oil.

Meanwhile, pressure was mounting on TOR to meet its credit obligations, after defaulting for three consecutive months in settling credit facility arrangement with suppliers. At that point, Government quickly ran to GCB for support. The Weekend Heritage gathered that because of the liquidity problems facing GCB, the bank's management appealed to Government to convert part of the TOR bonds into cash to enable them grant the financial assistance that government was seeking for TOR.

The Weekend Heritage learnt that the government and the BoG sweet-talked GCB to convert part of the TOR bonds in its books into cash, partly to improve the liquidity of the bank and, principally, to bail out TOR.

Thus on May 9, 2003, the management of BoG and GCB completed this transaction.

The sad story, however, is that what should have been a simple transaction ended up in what now looks like a loss of ?101 billion to GCB.

The Weekend Heritage investigations revealed that instead of BoG swapping the TOR bonds directly for cash for GCB, the Central Bank gave GCB 182-day Treasury Bills and prevailed upon them to discount the bills for cash at 20 per cent.

The Weekend Heritage learnt that the face value of the 182-day Treasury Bills was ?468.8 billion while the market value stood at ?506.5 billion. And by discounting at 20 percent, the GCB received only ?405.2 billion, which they used to buy foreign currency at the same BoG to pay for TOR imports.

The BoG then made a cool profit of ?101 billion on the transaction.

The question that several banking analysts are now asking is "did the management of the nation's two most important financial institutions understand the nature of this transaction?"

One of the bankers, who could not hide his anger, queried "what did BoG do to make a profit margin on this transaction?"

Another one, who similarly condemned the transaction, also asked "was it not the Central Bank who advised GCB in 2001 to help TOR and indeed Government to convert the loans, which TOR found difficult to repay into five-year bonds?"

Yet another question that was constantly posed by all the experts interviewed was "why should a request from GCB to convert part of bonds which had been forced on them cost them a loss of ?101 billion. A retired Managing Director of one of the leading commercial banks quipped: "Did the Central Bank not realise that TOR bonds in GCB books are secondary reserves and that those assets could not have been discounted as such?"

"The Ministry of Finance has to prevail upon the BoG to quickly reverse this dubious transaction and restore the sanity of GCB's books", he said.

The BoG is yet to respond to a questionnaire submitted by The Weekend Heritage last Monday on the transaction.