Mahama Ayariga Writes to BoG Governor on the Abuse of Property Rights of Owners of Domestic Private Banks

Mahama Ayariga Writes to BoG Governor on the Abuse of Property Rights of Owners of Domestic Private Banks.

Mahama Ayariga, a Member of Parliament representing Bawku Central, has raised concerns over the potential impact of the Domestic Debt Exchange Program on domestic private banks in Ghana. In a letter addressed to the Governor of the Bank of Ghana (BoG), Ayariga cautioned that the program may stunt the growth of these banks and result in capitalization and liquidity problems as they might not receive prompt coupon payments from the government, their bondholder.

The Member of Parliament for Bawku Central, Mahama Ayariga, has raised concerns over the Domestic Debt Exchange Program and how it may negatively impact domestic private banks in Ghana. In a letter addressed to the Governor of the Bank of Ghana (BoG), Ayariga highlighted that the program could cause capitalization and liquidity issues for these banks as they may not receive timely coupon payments from the government, their bondholder.

Ayariga also raised concerns about the directive issued by the Minister of Finance for emasculated banks to seek support from the Ghana Amalgamated Trust Plc (GAT) for the Ghana Financial Stability Fund (GFSF). He suggested that this move could leave these banks vulnerable to takeovers by investors in GAT, particularly if the Ghana Financial Stability Fund is not wholly publicly funded.

He further expressed concern that political patronage and nepotism may influence the ultimate purchase of shares in private banks once GAT starts to dispose of these shares to realize their investments in these banks. Ayariga concluded that the policy and strategic options chosen by the Finance Minister may lead to the illegal and unconstitutional expropriation of the property rights of present owners of domestic private banks, and even private international banks operating in Ghana.

In light of these concerns, Ayariga called for the mobilization of intellectual competencies and political forces to defend the property rights of private bank owners in Ghana. He warned that failure to do so could lead to the collapse of these banks, resulting in the transfer of enormous wealth to individuals who may enjoy the patronage of the Minister of Finance. This could pose a threat to Ghana’s democracy and potentially destabilize its politics. Ayariga’s letter comes on the heels of the recent banking sector “cleanup” that has left a lasting impression in the minds of many Ghanaians.

The Background

The Minister of Finance has recently unveiled a debt restructuring program aimed at exchanging government domestic bonds. According to reports, the total external debt of Ghana as of November 2022 was around GHC383 billion, with domestic debt constituting GHC195 billion, bringing the total debt to GHC578 billion. Approximately 50% of these domestic bonds are held by banks in Ghana, while individuals hold around 11% of government bonds.

However, concerns have been raised about the negative impact of the debt exchange program on these domestic private banks, as they will not receive timely coupon payments from the government. In a move that many consider compulsory rather than voluntary, the Minister of Finance has directed these banks to engage in the debt exchange program, which will inevitably affect their liquidity, solvency, and capitalization. This, in turn, creates a problem for the financial sector as individual investors will lose confidence and may stop depositing their funds in bank accounts.

In addition, the recent banking sector “clean up” and the collapse of some banks it generated have further increased public apprehension, threatening the stability of the entire financial sector. To address these concerns, the Minister of Finance has announced the creation of a Ghana Financial Stability Fund and has directed the banks to approach Ghana Amalgamated Trust PLC for a rescue package. However, this remedial prescription has raised further concerns, as it may result in political patronage and nepotism, leading to the illegal and unconstitutional expropriation of the private property rights of the present owners of domestic private banks.

This letter, therefore, seeks to highlight the danger of the Minister of Finance’s directives and calls for the mobilization of the available intellectual competencies and political forces to defend the property rights of private bank owners in Ghana. Failure to do so urgently may lead to the collapse of these banks, capriciously transferring enormous wealth to the hands of those who might enjoy the patronage of the Minister of Finance. This would not only disorient our democracy but also potentially destabilize our politics, which is a risk Ghana cannot afford to take.

Legal Concern Regarding the Intervention of GAT in the Banking Sector

I am writing to draw your attention to a matter of legal concern regarding the intervention of GAT in the banking sector. As you may recall, in my letter dated December 20th, 2021, I highlighted the legal challenge against GAT by Honourable Isaac Adongo, who sits on the Finance Committee of Parliament. The challenge questioned the legality and structure of GAT’s borrowing of public funds from the Government and BoG to invest in selected indigenous banks, which were required to recapitalize their banks in 2019. Our contention is that the issuance of the GHs2 Billion Sovereign Guarantee to GAT in support of its borrowing to invest in the selected indigenous banks was in contravention of Section 9(d) of the Banking and Specialized Deposit-Taking Institutions Act, 2016 (Act 930). Additionally, GAT acted as a financial holding company in contravention of sections 43(1), (2)(a), (c) and 44 of Act 930.

I have also issued a writ in the Supreme Court challenging the legality of GAT’s incorporation as a “commercial entity” by the Minister for Finance, acting through NTHC on behalf of the Government of Ghana. The incorporation was done in contravention of Articles 190(1)(b), (4), and 192 of the 1992 Constitution. The writ also challenges the capacity of the Minister for Finance and GAT to rely on Parliamentary approval for a Put-Call Option Agreement (PCOA) and a sovereign guarantee to enable GAT to issue an IPO to sell off its shares in the indigenous banks to some third parties. This grand scheme expropriates the interests of the existing owners of the participating banks.

It is crucial to note that the legally flawed framework used by GAT to intervene in the banking sector could lead to significant consequences for the affected banks and the financial sector at large. It is therefore imperative that these matters are thoroughly investigated to ensure that any intervention in the banking sector is done in compliance with the law.

The Illegality and Lack of Transparency of the GAT and Ghana Financial Stability Fund Funding

The GAT has been a contentious issue for some time now, with concerns raised over its legality and source of funding. In the past, I have corresponded with your office regarding the impropriety of the GAT and have taken the matter to the Supreme Court, where it is still pending.

Recently, the Finance Minister announced the creation of the Ghana Financial Stability Fund (GFSF) without any parliamentary legislation to establish it. There is also no clear legal framework for its operationalization, leaving many to question the sources of its financing. It is crucial for the Governor of our central bank to ensure transparency and legal certainty when proposing interventions in the banking and financial sectors.

The use of GAT to expropriate property from private indigenous banks is a cause for concern. GAT is not a proper framework created by law to pursue a purely public purpose, and its legal and financing frameworks are inappropriate. The Finance Minister has had ample time to create an appropriate legal framework but has declined to do so. The use of DDE has further hurt the private indigenous banks, which may have negative consequences for their capitalization, liquidity, and solvency.

Minister Ken Offori Atta’s proposed rescue approach is to push these banks to source solvency support from GFSF through GAT, which already limps badly on both legs of the inappropriateness of its legal and financing frameworks. This move could result in the forced inclusion of all indigenous private banks, suffocated by DDE, into the GAT framework, which could ultimately lead to a takeover by those who invest in GAT to redeem the Sovereign Guarantee used to raise the GAT financing.

This presents a real opportunity and danger for the ruling elite, who could use patronage to determine investors in GAT and effectively expropriate the interests in these indigenous banks through cronies. The likely modus operandi of GAT is to force the banks to devalue themselves as a function of the distress generated by Ken Ofori Atta’s imposed DDE and threats of capital adequacy regimes. GAT then uses some form of privately sourced funding, possibly backed by a Government of Ghana guarantee, to invest in the banks. This could undermine the managerial autonomy of these banks to steer themselves out of the crisis, leading to GAT-engineered managerial reconditioning.

Ultimately, GAT could sell their shares in the “stabilized” banks to potential buyers determined purely on the basis of prearranged political patronage and at less than market value for the shares. This could result in a structural rearrangement of ownership and control of the entire indigenous private banking sector, concentrating enormous private wealth in the hands of a few chosen elites. This unjust financial architecture could be used to manipulate and inappropriately control the levers of democracy.

The conduct of GAT in its dealings with banks in the wake of the banking sector crisis suggests that the above script could be followed. Despite a Supreme Court challenge to the legality of GAT and its unconstitutional means of advancement of public funds, the Finance Minister has chosen to solicit further assistance from GAT to enable banks to access financial support from the GFSF.

Mobilizing to protect the property rights of private owners of indigenous banks

After careful analysis, it’s crucial that the democratic institutions of Ghana step up and protect the property rights of the owners of indigenous banks. To ensure that the framework for salvaging the banks and insurance institutions is not influenced by selfish forces, Parliament must fight tirelessly to create a legal and institutional framework that safeguards the owners’ interests.

It’s important that political parties unite to prevent a transfer of interest in the financial sector to political cronies or those in power. Defending democracy means recognizing that those who hold on to political power in defense of ill-gotten wealth pose a significant threat to political stability.

The judiciary should understand that constitutional protection of property rights can be undermined in subtle ways. The ongoing happenings in the financial sector and the Finance Minister’s inappropriate intervention reveal less than noble motives in his actions.

We can begin identifying a lack of good faith by investigating whether Databank and Enterprise Insurance liquidated most of their government bonds before the Minister’s announcement of the DDE Programme. If true, this action could have saved these two institutions from the devastating impact of the announcement.

Finally, the International Monetary Fund (IMF) negotiating with the Government of Ghana should be cautious not to push conditions that could lead to the collapse of the financial sector. They should also monitor measures being taken by the Finance Minister that could result in domestic bank owners being expropriated of their assets. It’s essential that Parliament demands that the people’s representatives must be the ultimate authorizers of the DDE Programme.

To the Governor of the Central Bank

I am writing to you with a sense of urgency regarding the collapse of the financial sector in Ghana. While I have already made recommendations for concerted action, I believe that you have the ultimate responsibility for the health and well-being of this sector. As such, I implore you to take immediate action to prevent further damage.

The current situation presents numerous lapses and potential criminal schemes that require thorough investigation. It is imperative that steps are taken to prevent these dangers from becoming a reality. Failure to do so would be a great disservice to the people of Ghana and to the integrity of the financial sector.

Please be assured that I offer my highest regards and assistance in any way possible to ensure that the right thing is done. We must work together to protect the financial well-being of our nation and its people.

Yours Sincerely

Signed

Mahama Ayariga, MP
Bawku Central
CC:
CEO, Ghana Bankers Association
CEO, GAT
Speaker, Parliament of Ghana
Attorney General and Minister for Justice
Leadership of Parliament of Ghana
Board Chairmen, All Banks in Ghana
Country Director, World Bank Office, Ghana.