A Professor of Financial Economics at the University of Ghana Business School has questioned the collapse of UniBank, saying the fundamental principles of banking were disregarded during the financial sector clean-up.
Professor Lord Mensah, speaking on JoyNews’ PM Express on Wednesday, July 30, insisted that the decisions taken at the time did not reflect sound banking practice.
“In banking, there’s what we call minimising the loss and then maximising the recovery. And for me, this is a principle that’s a baseline for banking activities, be it at the central bank level or the lower bank level,” he said.
“So for me, these principles were not applied…when we had the banking crisis.”
He cited the widely accepted notion of “too big to fail” and explained that banks don’t exist in isolation.
“The existence of a bank takes several dimensions… You’re looking at government interest in there. You’re looking at employees’ interest. You’re looking at owners’ interest in the bank,” he argued.
“So if a bank is about to collapse, you don’t look at just the owner’s perspective alone and say that the owners are not able to meet certain financial obligations…You have to look at what the government is getting from the bank.”
He pointed out that banks were contributing corporate tax between 25% – 30% at the time, and that many families depended on these institutions for their livelihoods.
“People who are working and able to put food on the table for their kids… they’ve been able to manage their homes, put their kids to certain levels of education,” he said.
“So if 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.”
Prof. Mensah noted that UniBank was reportedly owing GH¢4.97 billion, but had offered GH¢2 billion in recovery.
“You have to take it,” he said. “Because in banking, as I mentioned earlier, you think about recovery, and then you minimise the possible losses.”
He described the entire clean-up process as one that neglected core principles of the banking system.
“You come to realise that the principles of banking were not followed at the time… we were cleaning up the banking sector.”
He referenced fellow panellist and legal practitioner Martin Kpebu, saying, “That is where my good friend Martin Kpebu will say that the motive was more of witch hunting than following banking principles.”
Prof. Mensah questioned the rationale behind ignoring recovery opportunities and instead transferring full financial burdens to taxpayers.
“You’re talking about recovering GH¢2 billion… So why 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 GH¢21 billion and over for the banking sector clean-up when you can retrieve, or you can recover some part of this money from the banks that were collapsing?”
He concluded, “From where I sit, it has to do with the basic principles of banking, which… was not applied in the entire banking clean-up.”
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