NIB capital injection good…but enhanced corporate governance must take precedence

Government’s decision to revive state-owned lender National Investment Bank (NIB), as outlined in the 2024 budget, has received backing from banking consultant Dr. Richmond Atuahene.

While commending the initiative, Dr. Atuahene emphasised the importance of enhancing corporate governance, establishing specialised operations within the banking industry and exploring the potential listing of NIB on the Ghana Stock Exchange (GSE).

Expressing his thoughts, Dr. Atuahene noted that the move is commendable but should have been implemented earlier, as the issues plaguing the bank did not arise recently.

“I believe it is a laudable idea. However, before we can fully commend the decision, a thorough examination of NIB’s financial records is essential to determine whether the allocated funds can effectively revive the bank. With approximately GH¢2.1billion in bad debts, additional measures are necessary to resuscitate and position the bank on solid ground,” he asserted.

Although the exact allotment to NIB is undisclosed, finance minister Ken Ofori-Atta during the budget presentation stated: “Additionally, a provision of GH¢4billion has been made in the 2024 budget to address National Investment Bank (NIB), distressed SDIs and other outstanding legacy challenges in the financial sector”.

Special agenda

The banking consultant advocated a special agenda for NIB, suggesting that the bank should not linger on the fringes of universal banking – but as a development-focused institution prioritise developmental initiatives once recapitalised.

He warned against the bank reverting to a retail banking focus, which could hinder economic growth.

Highlighting the urgency of addressing corporate governance issues, he underscored the need for a comprehensive resolution. He recommended that – if enforcing good corporate governance practices proves challenging, the bank should go public after recapitalization to avoid recurring themes of financial restructuring.

NIB has been under scrutiny due to poor periodic performances, consistent with other state-owned institutions which collectively posted losses of GH¢5.6billion in 2019, GH¢2.6billion in 2020 and GH¢1.7billion in 2021. The last published audited financial report from NIB was issued in 2015.

The bank’s underperformance led to discussions of a possible takeover by Agriculture Development Bank (ADB), another state-owned bank – a plan that was vehemently opposed by several parties, especially the minority in parliament.

The bank, along with four others, received government guarantees through the Ghana Amalgamated Trust (GAT) – founded in December 2018 – to recapitalize.

After the successful recapitalization of all banks in the country to GH¢400million following financial sector reforms, confusion still surrounds NIB’s recapitalization. While the finance ministry suggests it occurred through the special purpose vehicle (SPV), the central bank offers a conflicting stance.

On his part, Dean-University of Cape Coast Business School, Professor John Gatsi, expressed modest skepticism about the recapitalization effort.

“Looking at the fiscal constraints of government, one must wonder how likely it is that this will be realised,” he said, pointing to the wider Financial Sector Stability Fund.

Mr. Ofori-Atta had explained the Stability Fund’s structure, which comprises two distinct sub-funds. The first is a US$250million sub-fund supported by the World Bank, specifically designed for qualifying banks and SDIs. The second is a cedi equivalent of US$500million, funded by government. This sub-fund aims to recapitalise state-owned financial institutions and has the potential of extending support to other domestically controlled financial institutions, aiding them to enhance their solvency following the domestic debt exchange programme (DDEP).

Broader industry

Despite the peculiar struggles of NIB, across the board the banking industry has performed respectably in the face of lingering headwinds. As of end-September 2023, total assets of the banking industry reached GH¢250.7billion; marking a year-on-year growth of 14.9 percent from the GH¢218.1billion recorded in September 2022.

However, a closer examination reveals a nuanced picture. The period under review saw a weakening in asset quality, as evidenced by a rise in non-performing loans (NPL) relative to the growth in total loans. The NPL ratio surged to 18 percent in September 2023, up from 14.1 percent in the same month of the previous year. Even after adjusting for the fully provisioned loan loss category, the industry’s NPL ratio increased to 6.7 percent from 3.5 percent during the same review period.

Despite these challenges, the banking sector managed to achieve a notable profit after tax growth. In September 2023, the industry recorded a 43.8 percent increase, reaching GH¢6.2billion. This contrasts with a growth rate of 19.5 percent in September 2022, showcasing the sector’s ability to navigate and thrive in a challenging economic landscape.

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Government’s decision to revive state-owned lender National Investment Bank (NIB), as outlined in the 2024 budget, has received backing from banking consultant Dr. Richmond Atuahene.