The banking sector crisis was not systemic – Alhassan Andani
Former president of the Ghana Banking Association, Alhassan Andani, says the crisis in the banking sector was not systemic but rather institutional.
According to him, most of the major players in the banking sector had identified and taken precautionary measures against banks at risk of insolvency long before the Central Bank raised red flags regarding these banks.
He noted that if these big banks had been unduly exposed to failing banks, the collapse of failing banks would have had a much more resounding effect on the country’s economy.
He said the Bank of Ghana should have realized earlier what was happening in the banking scene and taken appropriate action, however, the BoG continued to provide liquidation to failing banks long after most banks cut credit ties with unhealthy banks.
Speaking on JoyNews’ PM Express Business Edition, he explained: ‘Instead of the regulator … stepping in at the right time, they were getting liquidity support. But generally, the liquidity support of the banking sector is absorbed within the banking sector.
“In the morning there will be a bank that will have excess cash and they know I can’t use that there is a bank that has cash needs so you will throw in some agreed limit and then it will be cleared the next day, all that’s what we do.
“But when you’re stuck, you’re always out there in the market picking up somebody who’s going to say ‘what’s happening to this bank?’ Then people start withdrawing their [funds]. Thus, at the peer level, some banks knew that other institutions within this space were not sound enough and therefore cut their credit lines.
“It should have been a signal to the Central Bank. And if you go there for liquidity support number one and come back number two, there’s a problem. Someone should be sitting there helping you balance your assets and liabilities.
He thinks liquidity support should have been stopped to allow banks to collapse on their own.
“Yeah, and then we would have made one institution disappear and the others would be resolved, instead of trying to tolerate as many as possible, you had such a huge institutional impact. But even then, look at it, none of the top 10/12 banks were hit because it wasn’t systemic.
“Systemic is where you think this bank was sound and everyone was doing business with them and all of a sudden they couldn’t meet. Then, the default of a bank will affect a healthy bank because this healthy bank had exposures to the failing bank. This is systemic risk.
“But in the case of what happened in Ghana, there was very little systemic risk because we know those who were already at the bottom were ready to go,” he said.