Specialised Deposit-Taking Institutions (SDIs), especially finance houses and savings and loans companies, are pushing the government to expand the Ghana Amalgamated Trust Limited’s (GAT) scope to support them with secure and cheap funds, as they ready themselves for a capital increment directive from the central bank.
The SDIs, which are the biggest financiers of Small and Medium Enterprises (SMEs) in the country, believes the injection of such patient capital in their operations will allow them to focus on their core job of supporting the growth of SMEs.
In interviews with two CEOs of a savings and loans company and a finance house, they noted that the financial sector clean-up and the effects of COVID-19 on their operations -though having made them resilient – made it difficult to raise fresh capital from existing shareholders, and the GAT route will allow them to take on more risks in financing SMEs to help with economic growth as well as increase their portfolio.
The Ghana Amalgamated Trust (GAT) is a special purpose vehicle established by the government to support solvent and well-run indigenous banks which were otherwise having difficulties meeting the new minimum capital requirement by the Bank of Ghana. GAT raised and injected GH¢ 800 million into four banks, which has allowed those institutions to continue operating.
Philip Odei Asare, Chairman of the Ghana Association of Savings and Loans Companies (GHASALC), told the B&FT that the sector needs help to mobilise all the funds available at the very lower end of the market into the banking system to support the economy; and that can be done aggressively if SDIs are given some more attention by the regulator and other stakeholders.
“When commercial banks which could not meet the capital requirement of the central bank were being liquidated, some of them were supported through a structure called the Ghana Amalgamated Trust Limited (GAT). Through that, the government went to parliament to get approval for supporting local entities that are making contributions to our economy today; why can’t we do the same for Savings and Loans?
“We understand that we need the Savings and Loans to make the banks strong. If the banks have been saved, why do you allow the Savings and Loans to go? Why can’t we support them so that they continue to be a channel between the low-income customers and commercial banks?”
The country’s formidable finance houses – also made a similar call for his sector. To him, the current times call for some special attention from the central bank. He said that even though many of them are in good standing, a liquidity support programme through the GAT would be a major boost not only for the sector but also the economy.
“What they (BoG) should do is to provide liquidity support,” Mr. Arthur told the B&FT in an interview. He wants the central bank to critically factor this proposal into some of the measures it plans to deploy to ensure a liquid financial sector.
“They already have a way of dealing with the banks. One of such is direct liquidity support from the central bank, but the Ghana Amalgamated Trust Limited (GAT) arrangement is one that I would recommend. The GAT arrangement is a good model that can be used or re-modelled to support our sector with some liquidity.
“We need funds at a much secured and cheaper rate. This could also be a way of rewarding well-managed and governed institutions which adhere to all the regulations. It would help us to not only perform our mandate properly but also we could be of great benefit to the entire economy.
“SMEs constitute the largest and most active sector of the economy and businesses; therefore, anything that is done to support the financing of such a group of people will reflect positively on the economy,” Mr. Arthur said.
With the recapitalisation of banks complete, the central bank has turned its attention to the SDIs sector. Rural banks and microfinance companies have seen their stated capital increased by the regulator. Though deadlines have been moved a couple of times, these institutions are left with no choice but to increase their capital.
Currently, savings and loans companies and finance houses operate with GH¢15 million as stated capital. But with increasing non-performing loans due to the COVID-19 pandemic, the need for these SDIs to increase their stated capital has become urgent.
The of central bank Governor, Dr. Ernest Addison, recently hinted that he will be announcing a capital increment directive to the SDIs as a result of the Coronavirus (COVID-19) pandemic which has eroded their capitals. Dr. Addison is convinced that a recapitalisation of SDIs will be “necessary” to help bolster their resilience and guard depositor funds under their care against losses.