\u201cYou recover before you collapse.\u201d That was the criticism from Professor of Financial Economics at the University of Ghana Business School, as he criticised the Akufo-Addo government\u2019s handling of the banking sector cleanup. <\/p>\n
Lord Mensah, speaking on PM Express on JoyNews, Wednesday, July 30, argued that the foundational principles of banking were ignored in a process that ultimately cost taxpayers over \u00a221 billion.<\/p>\n
\u201cIn banking, there\u2019s what we call minimising the loss and then maximising the recovery. And for me, this is a principle that\u2019s a baseline for banking activities, be it at the central bank level or the lower bank level,\u201d he explained. <\/p>\n
But to him, those principles were set aside in the rush to collapse struggling financial institutions. <\/p>\n
\u201cThese principles were not applied earlier on, when we had the banking crisis.\u201d<\/p>\n
He pointed to the widely accepted banking concept of \u201ctoo big to fail\u201d to underline how deeply embedded banks become in the economy beyond just their shareholders. <\/p>\n
\u201cThe existence of a bank takes several dimensions. You\u2019re looking at government interest, employees\u2019 interest, and owners\u2019 interest. So if a bank is about to collapse, you don\u2019t look at just the owner\u2019s perspective alone.\u201d<\/p>\n
At the time of the collapse, he said, many of these banks were generating corporate tax revenues between 25% to 30% and supporting hundreds of livelihoods. <\/p>\n
\u201cPeople who are working and able to put food on the table for their kids as a result of working in the bank\u2026 they\u2019ve been able to manage their homes and put their kids to certain levels of education.\u201d<\/p>\n
He argued that prioritising government interests while ignoring employees and broader economic implications was a flawed approach. <\/p>\n
\u201cIf you collapse the bank as a result of pushing for the interest of the government, you end up sacrificing employees and at the same time, the state as well.\u201d<\/p>\n
Citing an example, Prof. Mensah revealed that some of the banks offered partial recovery settlements. <\/p>\n
\u201cIf you have a bank that, as a result of solvency and liquidity issues, is owing to the tune of \u00a24.97 billion, and the bank has made an attempt to give you GH\u00a22 billion, you have to take it.\u201d <\/p>\n
He insisted that in banking, recovery is always preferable to total loss.<\/p>\n
But instead of seizing the opportunity to retrieve part of the losses, he said the decision to collapse the banks transferred the full weight of the cleanup to ordinary Ghanaians. <\/p>\n
\u201cWhy do you collapse the bank and then transfer all the possible obligations to the taxpayer to the point where the taxpayer had to commit about \u00a221 billion and over?\u201d<\/p>\n
To him, this indicated a fundamental departure from standard banking practice. \u201cFrom where I sit, it has to do with the basic principles of banking, which were not applied in the entire banking cleanup.\u201d<\/p>\n
Prof. Mensah concluded by aligning with the view of fellow guest, lawyer Martin Kpebu, saying \u201cthe motive was more of witch hunting than following banking principles.\u201d<\/p>\n
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