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Blame fallen profits of banks on collapsed real sector - Thompson

April 8, 2016, 8:49 a.m.

The chief executive officer of Dalex Finance, Mr Ken Thompson, says the collapse of the real sector of the economy is providing fewer options for economic actors, especially banks and other financial institutions, to do business.

The business executive did not mince words, saying banks have had to resort to financing government supplies through contractors and treasuries.

Hence, failure of the government to release funds would create a ripple effect in the economy, and the banks suffer alongside, Mr?Thompson told the Daily Graphic, in an interview.

The real sector and banks

The real sector of the economy is made up of agriculture, services and industry.
Last year, agriculture was valued at GH¢24.14 billion and grew at a negligible rate of 0.04 per cent, with services (valued at GH¢69.21 billion) and industry (valued at GH¢34.35 billion) posting 9.1 per cent and 4.7 per cent growth respectively.

Although the Graphic Business is in the process of conducting a full banking survey, data from their annual results published in the dailies indicate that profits of the banks have dipped.

In some instances, profits have dipped by as much as half of the previous year’s, with some making flat losses. The percentage increases for banks that made profits have been modest.

Mr Thompson said the situation had come about because the slump of the real sector of the economy had stifled creativity and ability to finance activities along the value chain, but had been left with the cold business of financing ‘government business.’

“It is going to be hard for the banks to do things creatively, especially with the real sector not growing.”

That is because, he explained, a lot more of the private sector players had turned to doing government business by way of supplies. That meant that the government would borrow from the market (crowd out the private sector) and use it to finance supplies, hence not much value was created along the value chain.

“These days everybody is doing government business from one supply to the other. This has caused the banks to finance those activities, as the real sector has collapsed. This means if the government does not pay its bills, the banks cannot remain profitable,” he said.

Banks are now in the thick of bringing off-balance sheet activities to mainstream banking due to the dearth of creative line items to finance. For instance, many banks are now offering scheme loans for salary workers, an item which banks hitherto did not avert themselves to.

Many of the banks have also cut lending activities and concentrating on investing in government treasuries.

Need to focus on agric

Growing the agricultural sector touches on every nerve of the economy and the finance executive wants the country to focus on that sector, as a way of lifting the entire economy from the challenges.

“Agriculture has to be brought back on stream. For instance, if cashew production goes up, it affects a lot of activities and people along the value chain and this is the way to strengthen the real sector so that banks and other actors can be in business again,” Mr Thompson stated.

Bank of Ghana

The CEO of Dalex Finance called on the incoming Governor of the Central Bank “to do what he has to do,” stressing that it was time to take central banking to the next level by holding the bull by the horn.

He explained there was no need for the BoG to finance government deficit and should be bold to bounce government cheques if there were no funds in their accounts.

“There was a time in this country when some governors, including Dr Paul Acquah, bounced government cheques. When this starts happening, the fiscal deficit will be under check,” he said.


Disclaimer: The views expressed in this news report do not necessarily reflect the position of the National Development Planning Commission (NDPC)