Long period of recovery is associated with most economies that experienced financial or banking crisis.

The case of Ghana will not be different. Various pass-through effects, including public, political and investor reactions will continue for some time.

Reactions regarding some of the measures put in place will soon be hitting the public space.

Silent and open reactions and in some cases legal actions should be expected as part of the post recapitalisation and banking sector reform process.

GAT support

The Ghana Amalgamated Trust (GAT) will now be considered very well by stakeholders. Openness and inclusiveness is needed to settle most of the post-recapitalisation difficulties.

A strong and stable local banking sector is required to ensure a balanced financing of economic activities and continuous circulation of the benefits derived in the local economy.

The decision to support local banks is in our collective interest and does not show discrimination against the banking sector since already there is ongoing bailout for selected businesses, mostly in the manufacturing sector.

Therefore, the best approach should have been a pure bridge capital to provide temporary unencumbered capital to the local banks until a less entangled exit takes place.

This is what local banks with commitment to finance government programmes such as the One district, One factory (1D1F) should benefit from.

We recently waived millions of Ghana cedis in tax revenue for Anglogold Obuasi Mine to start operations.

We sacrifice a lot to allow foreign companies to enjoy attractive investment climate to operate.

Local banks such as Universal Merchant Bank (UMB), which stated very clear support for government projects and has been contributing to the socioeconomic development of Ghana must be supported in a manner that does not create fears and anxiety.

Challenges with GAT

There are possible challenges with the approach adopted to bailout the local banks as the GAT investment agreements with the local banks may generate corporate governance stalemate with bitter end game between original shareholders and GAT as investor.

Another fear is whether the best way the state can do to help its local banks is to capture private investments.

The attractiveness of these banks may be difficult as the implementation of the GAT agreement with the banks may generate legal actions.

On the face of Section 9(d) of the Banks and specialised Deposit-taking Institutions Act 2016 Act 930, the capital of banks should not include borrowed funds.

So, why should GAT borrow from private pension funds to recapitalise a bank?

Recapitalisation is like going through the licensing process again but at this time, the main condition is getting the minimum capital.

That is the reason why at the deadline of recapitalisation, those banks with capital below the required amount had their licenses withdrawn or downgraded.

If at exit, either before or at the end of the fifth year, these local banks and their shareholders prior to the entry of GAT cannot raise funds to buy back the shares of GAT, then GAT will be required to sell its shares to other investors.

There is the need to rethink the GAT approach to ensure that an unencumbered but well-monitored bridge capital is used to support the local banks.

The author is the Head of Department of Finance, University of Cape Coast (UCC)