The Insolvency Of UNIBANK And The Way Forward

News of the insolvency of Unibank and the subsequent appointment of KPMG, an international accounting firm as the official administrator is worrying and shocking. The Bank of Ghana yesterday (March 20) broke the news of incapacitation of Unibank which it said had among other things persistently maintained a capital adequacy ratio below zero or negative 24%. This, according to the Central Bank contravenes section 29 of Act 930 which requires a minimum capital adequacy ratio of 10%. The insolvency of Unibank raises fundamental issues about the strength of our commercial banks. Less than six months ago this country woke up to the collapse of two banks, UT and Capital banks and it is yet to fully come to terms with the loss. Presently with Unibank, we are told that for close to two years its oxygen came from the Central Bank. What we do know is that if banks face liquidity shortages or worst, it would have major impact on savings, business and consumers. Severe banking crisis invariably affect economic growth and can cause unemployment. For example after the credit crunch of 2008, many banks in the UK, US and Europe went short of funds, they had lost money lending to subprime mortgages. They needed to improve their balance sheets, therefore loans dried up leading to a period of negative growth and increasing unemployment.

A fall in investment levels causes lower economic growth and has a knock down effect. With lower demand firms cut back on investment and crisis such as the Unibank, UT and Capital Banks certainly will have an impact on general economic confidence. If consumers fear their savings are not safe in the banks they will switch to cash savings and not keep money there. The collapse of the three banks automatically will lead to losses but most painfully the loss of jobs. What we are not sure of at the moment is whether there are other banks in similar situations and just waiting to fall. Experience tells us that governments are much more reluctant to allow banks to fail. The manner of the GCB - UT synchronisation is a clear example. The bottom line is that there is the need for something to be done to halt the situation especially in the banking industry. Rules have got to be adhered to and supervision intensified. This is because we cannot allow banks and microfinance institutions to fall like stone from the sky inflicting never healing wounds on customers, investors or business. In such situations we think external auditors of these institutions must be questioned for gross dereliction of duty and failure to bring to the attention of the public the precarious state of the banks. This is because there is huge public interest in them.

Going forward we expect the Central bank to tighten its supervisory role since, we cannot continue to have our banking institutions collapse. The Bank of Ghana nevertheless deserves tons of commendations for acting swiftly to avert the imminent crisis. Indeed the pain and attendant loss is too harsh for the economy and those hardest hit. Players in the collapse of UT, Capital and Unibank must bow their heads in shame for their roles in bringing them down. Indeed there are more questions than answers in the Unibank episode, how can a bank that won four awards at the 15th Ghana banking awards in 2016 face imminent bankruptcy in 2018? How can a financial institution adjudged sixth best company in Ghana out of 100 top performing companies face near bankruptcy? How can a bank voted for being the most prestigeous company in Ghana in December 2017 be put under such microscopic surveillance in 2018? These indeed are potent questions that demand quick answers. Can the Bank of Ghana tell us more?



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