Dr John Kwabena Kwakye
Dr John Kwabena Kwakye, Research Director at the Institute of Fiscal Studies (IFS), an economic think-tank, has blamed the current crisis in the banking sector to inefficiencies of some of the banks, as well as external factors such as unstable macro-economy.
Commenting on Citi Fm, an Accra-based radio station yesterday, Dr Kwakye stated: “We have had very unstable macro-economy situation – high rates of inflation, exchange rate instability, even high interest rates, because when you lend at very high interest rates, the tendency for the customer to be able to pay is also reduced.”
Wastefulness
On this, the Research Director noted: “Now when it comes to the management issues, I don’t know exactly how these banks have been managed. There could be problems there. You mentioned the issues of inefficiencies in banks.
“There are very high operational costs, and you can also say that that has been a contributory factor.”
Customer identification
“And then, associated with that there is also things about the customer. How do we identify customers? We don’t have address systems. So you can even lose customers and they can abandon you.
He also said the country was not fully operating the Credit Rating Referencing Bureaux, which could give information about the credit worthiness of customers, among others.
Reserve requirement ratio
Furthermore, he noted: “Now banks also complain about the high reserve requirement ratio, which is about 10 percent. If you take a deposit of 100, you must deposit 10 with BoG. And it doesn’t attract any interest. But meanwhile you are paying interest on the entire 100, so all of these.”
Capitalisation
Dr Kwakye revealed that banks were facing problems with capitalisation.
“You know we have a situation where all banks are classified as universal banks, and therefore BoG is prescribing a uniform capital for all of them. Some people have argued that the banks are not at the same levels. Some are stronger; some are bigger. So in other situations, and I understand Nigeria has that system where you have bank segments. You segment the banking industry. In other words, you have some regional banks and some universal banks. In the US, the same thing is done so that you specify different capital for the different category of banks.
“Of course depending on whether they are a regional bank or a universal bank, you have to limit their operations. But maybe that may be a little cumbersome to manage so that is why our regulatory authorities are not thinking about that.”
Exposure to energy debt
He said some of the banks were heavily exposed to the energy sector, which had affected their balance sheet.
“Of course government says it is going to issue bonds to liquidate some of the debt which is a good thing. It will help the balance sheet of the banks.”
By Samuel Boadi