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Business News of Saturday, 14 April 2018

Source: citifmonline.com

Pay contractors to save banks, capital requirement not the problem – Adongo

The issue of the recapitalization of banks to make them more secure is misplaced in the eyes of the Bolgatanga Central MP, Isaac Adongo.

He feels the focus should be on ensuring that contractors who take loans from banks for government projects are paid on time so they can pay back before the banks are put at risk.

Speaking on Eyewitness News in response to the President’s decision to form a committee to consider proposals to extend the recapitalization deadline of banks, within which they have to raise their capital to at least GHc 400 million, Mr. Adongo said what is needed is “an inquest into the problem and role financing of government projects has played.”

He said these constraints the government has put on contractors has translated to local banks which have to write off their own capital by close to GHc 5 billion.

“It is quite clear from the Bank of Ghana’s own revelations that once it takes 24 months for government contracts to be paid, by the time government pays those monies, those monies would have been classified as non-performing loans and they will be charged against the capital of those local banks.”

“The local banks alone have close to GHc3.7 billion of outstanding claims and if the government were to meet those payments to the companies and those monies went to the banks, all the impairment of their capital will automatically be reinstated and their adequacy will straight away improve,” Mr. Adongo argued.

If this concern is not addressed, the MP held that the cycle of the government, contractors and banks suffering financial challenges will continue.

“We are asking them to bring more money, they [contractors] will financé another government project, those monies will go and be locked up,” he remarked.

The raising of the minimum capital requirement followed the collapse of Capital Bank and UT Bank in 2017.

In 2018, uniBank was also found to be insolvent and taken over by the Bank of Ghana.

Support for extension

Senior Minister, Yaw Osafo-Maafo, and Minister for Trade and Industry, Alan Kyerematen, have thrown their weight behind the Association of Indigenous Banks seeking an extension of the December 31 deadline for local banks to meet the Bank of Ghana’s minimum capital requirement.

Some local banks have described the time as too short a period to meet the target.

Managers of domestic banks in the country met the President to request for an extension of the deadline and they want the deadline extended from 2018 to 2022.

But it appears some key officials in government are divided over the petition.

Vice President Dr. Mahamudu Bawumia and Governor of the Bank of Ghana, Dr. Ernest Addison, are two critical personalities in the meeting who opposed the decision to petition the president to extend the deadline.

The two argued that local banks can consolidate to grow their asset base if they can form an Association of Indigenous Banks.