In an exclusive interview with the Governor of the Bank of Ghana, Dr Ernest Addison, at the ongoing Spring meetings of the IMF and the World Bank Group in Washington, DC, United States (US), he said liabilities of the savings and loans and other finance houses were estimated at GH¢7 billion.

 Although he did not say when the clean-up exercise of the savings and loans companies would begin, it is expected that the process will begin before the end of the year.

 It is, however, unclear which module the central bank will adopt: either a purchase and assumption agreement, by which strong savings and loans companies will take up selected assets and liabilities of the insolvent ones, or consolidation of all the insolvent ones into a new savings and loans entity.

The module to adopt, according to Dr Addison, was part of the ongoing discussions between the central bank and the Ministry of Finance to iron out the best module to save the sector that was almost in distress.

The government spent almost GH¢12 billion last year to liquidate seven distressed banks and the cost of cleaning up the savings and loans companies and other finance houses was becoming a burden to the government.

 “We see the cost of the clean-up of the micro-finance sector as not that much, compared to what we are seeing in the savings and loans and the other finance houses, which is about GH¢7 billion.

“We have done our analysis and the estimate of the clean-up of the sector is about GH¢7 billion, which we have to find to complete the process.

“The engagement will ensure that the necessary funds can be raised on the part of the government to cushion depositors of these institutions,” Dr Addison said.

 That could be one of the toughest measures the BoG is taking in recent times to sanitise the savings and loans and other finance houses sector.

He said the government would have to bear the initial cost of the clean-up exercise and later recover its liabilities from the assets of the companies.

Imminent shake-up

There are currently about 37 savings and loans companies and 22 finance houses, with almost a quarter of them in distress, a situation which analysts say requires a shake-up.

“We just have to ensure that no depositor loses his or her savings, so will do all we can to protect depositors,” he said.

Only eight out of the 37 companies operating in the savings and loans sector have paid-up capital above the minimum amount of GH¢15 million.

 It is expected that the central bank will seek to enforce the existing minimum threshold of GH¢15 million as part of the reforms of the sector to ensure that those that are not able to meet their capital requirements lose their licences.

This is because the quality of assets in the sub-sector has been troubled by the record high non-performing loans (NPLs).

The savings and loans and finance house sub-sector dominates the specialised deposit taking institutions sector in Ghana, accounting for 42 per cent of the total asset size of the sub-sector.

Classification of financial sector

Ghana’s financial services sector is classified into three main categories — banking, non-banking and micro-finance institutions.

Savings and loans companies fall under the non-banking financial institutions category, while micro-finance companies fall under the micro-finance category.

According to BoG regulations, a savings and loans company is supposed to have an initial capital requirement of GH¢15 million, while that for a micro-finance company is GHc2 million.

Whereas savings and loans companies require licences before they can operate, micro-finance companies can operate with provisional licences before they obtain their final licences.

Perhaps the most distinctive difference between the two sectors is the amount they can take from depositors. While clients of savings and loans companies can deposit any amount in their accounts, the client of a micro-finance company cannot deposit more than five per cent of the company’s capital at a go.