‘Panic Withdrawals ‘Killing’ SMEs’

Kenneth Kwamina Thompson

Kenneth Kwamina Thompson, Chief Executive Officer (CEO) of Dalex Finance, a Ghanaian financial institution licensed and regulated by the Bank of Ghana (BoG), has called on the industry regulator to manage ‘aggressively’ its communication on the current financial crisis, as it risks plunging Ghana into economic decline.

Speaking in an interview with BUSINESS GUIDE Friday in Accra, Mr. Thompson indicated that credit to Small and Medium-sized Enterprises (SMEs) was drying up because they could no longer be supported by financial institutions as a result of panic withdrawals.

He said such withdrawals were making the financial institutions illiquid.

The Dalex Finance CEO said that no financial institution in the world would be able to repay even 25 percent of its depositors on demand, adding that if panic withdrawals were not dealt with, solvent financial institutions would become illiquid resulting in more panic withdrawals.

“There are rumours that Consolidated Bank, the new entity established by government, was not honouring all its debts to customers and that it had re-profiled some of the debts, as well as reduced the interest rate it initially agreed to, on the maturity of investments. This is said to have deepened the fears of some customers.

“It is worth noting that illiquidity is different from insolvency. Financial institutions trade with customers deposits. So an institution, which is able to pay its investors as and when the investments ‘mature,’ is solvent.”

On the other hand, he said an institution was insolvent if it was unable to repay its debts as and when they mature, adding that an institution is illiquid if it has no cash to pay its depositors on demand.

Furthermore, he said “an institution becomes illiquid if customers demand their investments before maturity.”

In the view of Mr. Thompson, financial institutions, foreign or local, would become illiquid if they are faced with panic withdrawals.

It would be recalled that efforts to resuscitate the ailing banks exacted as much as GH¢12.7 billion from both government and private sector sources, with the need to sink more money.

This led to the revoking of the licences of some seven local banks and the ‘repackaging’ of five of them into Consolidated Bank.

Executive director of the Centre for Policy Analysis (CEPA), Dr Joe Abbey, has indicated that inclusive growth is crucial.

He, therefore, urged government to continue to deploy more innovative ways to support indigenous institutions since the microfinance sector is reportedly facing challenges.

“Kenya is receiving high reviews for innovative use of smart phones in credit provision of SMEs,” he stated.

By Samuel Boadi

Credit: DailyGuide

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