Month: September 2020

BOG GOVERNOR JUSTIFIES CONVERSION OF BONDS TO CASH TO PAY DEFUNCT MFIs, S&Ls’ CUSTOMERS

The Governor of the Bank of Ghana, Dr. Ernest Addison has justified the recent decision by government to release an amount of GHS3.56 billion in cash, to fully settle claims of depositors of defunct Microfinance companies, Savings and Loans firms and Finance Houses, instead of sticking to the original plan to pay that amount using bonds. Customers had raised concerns over the five-year tenor, as well as the non-interest-bearing nature of the bond, saying the arrangement was essentially creating a significant loss in the value of their claims. BOG GOVERNOR SPEAKS Speaking at the just ended 96th Monetary Policy Committee press conference Dr. Ernest Addison explained that government adopted the cash payment method because its original plan to pay depositors of the defunct institutions with a combination of cash and bonds had become unpopular.  “Obviously it was not very popular, so government took a decision to redesign the bond. So, the zero-coupon bond was withdrawn and a new marketable bond in line with market trends was issued. The new bond was easy to sell for liquidity on the market. It’s a 3-year bond at an interest rate of 19%, which we’ve been able to offload unto the market, and the Consolidated Bank has received the Cedi equivalent which they are using to pay depositors.” Dr. Addison also allayed fears about the impact of the release of the money on liquidity in the system and subsequently on inflation. “We’re currently seeing currency outside banks at around 30%. We are watching that situation. As I said, the economy is operating significantly below potential, so these types of injections will not necessarily translate into inflation in the short-term, but it’s one of the risks in the outlook that we keep monitoring almost on a daily basis.” GHS3.56 BILLION CASH RELEASED TO SETTLE REMAINING CUSTOMERS OF COLLAPSED MICROFINANCE FIRMS, OTHERS Government earlier in September released GHS3.56 billion in cash to fully settle depositor claims of 347 defunct Microfinance companies, 23 Savings and Loans firms and Finance Houses that were being settled with bonds. Depositors started receiving the money from September 16, 2020. “Notice is hereby given that with effect from Wednesday 16 September 2020, affected depositors may contact any branch of Consolidated Bank Ghana Ltd (“CBG”) the paying bank to access their newly created Cash accounts which were originally designated as Commercial Paper (Bond) accounts at the bank,” a statement from the Receiver announcing the payment noted. Government had earlier released GHS6.07 billion for settling of depositors of the resolved companies in cash and bonds. While part of the amount was used to pay cash claims, GHS3.56 billion of the said amount was settled using Government-backed bonds. But there were concerns that this method, the non-interest-bearing nature of the bond and tenor of five years, did not make the bond commercially attractive, thus creating a significant loss in value of the claims by the customers. “Sensitive to these concerns and in order to provide additional liquidity to the financial sector, Government has made available to the Receiver/Official Liquidator additional cash amounting to approximately GHS3.56billion,” the statement said. COLLAPSED FIRMS On May 31, 2019, 347 microfinance companies had their license revoked by the Bank of Ghana as part of the financial sector cleanup. The Bank of Ghana, in August 2019, also revoked the licenses of 23 insolvent Savings and Loans companies and Finance Houses. These actions were in line with Section 123 (1) of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930), which requires the Bank of Ghana to revoke the license of a Bank or Specialised Deposit-Taking Institution (SDI) where the Bank of Ghana determines that the institution is insolvent.

FINANCIAL SECTOR CLEAN-UP: ALL CUSTOMERS TO RECEIVE CASH PAYMENT INSTEAD OF BONDS

IN THE MATTER OF THE BANKS AND SPECIALISED DEPOSIT-TAKING INSTITUTIONS ACT,2016(ACT 930) AND IN THE MATTER OF THE RECEIVERSHIPS OF 347 MICROFINANCE COMPANIES AND THE 23 SAVINGS AND LOANS AND FINANCE HOUSE COMPANIES AND NOTICE OF CONVERSION OF GOVERNMENT BACKED NON-INTEREST-BEARING COMMERCIAL PAPER (“BONDS”) INTO CASH AT NO DISCOUNT IN RESPECT OF PAYMENTS TO AFFECTED DEPOSITORS OF RESOLVED MICROFINANCE, AND SAVINGS AND LOANS AND FINANCE HOUSE COMPANIES WHOSE CLAIMS HAVE BEEN VALIDATED IN THE RESOLUTION PROCESS  In line with Government’s commitment to protect depositors funds and to shore up public confidence in the financial system, Government made available to the Receiver of the above resolved companies, as well as the Official Liquidator of the Micro Credit Companies in official liquidation,  a combination of cash and Commercial Paper totalling approximately GHS6.49billion to fully settle the valid depositor claims on these institutions. As the Receiver/Official Liquidator brings the processing and payment of valid depositor claims to closure, a total amount of approx GHS6.07billion has been paid to some depositors of these resolved companies, leaving an amount of approx. GHS402million to be paid to the remaining depositors, to fully settle  all valid depositor claims in the resolution process. It should be noted that these claims include validated claims previously assessed by the Receiver/Official Liquidator as Late Submission claims owing to the fact that they were submitted after the extended deadline for the submission of depositor claims in the resolution process. Of the total amount of approximately GHS6.49billion required to fully settle all valid depositor claims in the resolution process, about GHS3.56billion of these claims in value representing approx 55% of total claims payable are being settled with Government of Ghana backed Non-Interest bearing Commercial Paper (“Bond”), with the remaining approx. 45% in value of claims payable, worth approx. GHS2.93billion being  settled with Cash. The Depositor Payment Scheme set up by the Receiver/Official Liquidator to administer and fully settle all valid depositor claims in the resolution process has largely been successful; however an area of concern for most of the affected depositors is with the features of the Commercial Paper used to partially settle the indebtedness of these resolved companies to those depositors whose claims were not fully extinguished by the payment of cash to them. These depositors have indicated that the features of the Bond, being non-interest bearing and with a tenor of five years do not make the Bond commercially attractive, thus creating a significant loss in value of their claims to them. Sensitive to these concerns and in order to provide additional liquidity to the financial sector, Government has made available to the Receiver/Official Liquidator additional cash amounting to approx.GHS3.56billion, equivalent to the total value of the Bond component of funding required to fully satisfy the indebtedness of the resolved entities to their body depositors. It is the expectation that this additional cash of approx. GHS3.56billion will replace the Commercial Paper which has been issued by Government in favour of affected depositors of these companies in resolution. The implication of the above is that depositors who have either received or are due Commercial Paper in partial satisfaction of their claims will now receive CASH payments at no discount for the Commercial Paper they have either received or is due to them.  Please note that depositors who have already discounted all or part of their Commercial Paper will receive a full refund in cash  of the discount they suffered. As a result of this new funding arrangement provided by Government, all valid depositor claims in the resolution exercise worth GHS6.49billion in value are being fully settled in CASH. Notice is hereby given that with effect from Wednesday 16 September 2020, affected depositors may contact any branch of Consolidated Bank Ghana Ltd (“CBG”) the paying bank to access their newly created Cash accounts which were originally designated as Commercial Paper (Bond) accounts at the bank ie CBG. Stakeholders may direct all questions or clarifications on the above to the coordinates below: Tel: 024 243 9441/ 0550000966 Website: www.ghreceiverships.com SGD ERIC NANA NIPAH