17 September 2016

BDCs debt payment plan with governement in limbo?

dfagfgfgFears of a likely collapse of a number of banks in the country have been reinforced following new revelations that government may not abide by the agreed payment plan to clear debts owed banks by Bulk Oil Distribution Companies (BDCs).

Government is currently indebted to about 17 Bulk Distribution Companies (BDC)s in excess of 500 million dollars.

Majority of the BDCs contracted loans from commercial banks in the country to facilitate their operations but have failed to pay up the loans due to government’s indebtedness.

The development has been attributed as one of the cause of the significant rise of bad loans on the books of banks recently.

Botched agreement

In a bid to clear the debt, a payment plan was agreed by all parties – BDCSs, the Ghana Association of Bankers and the Finance Ministry in which payment of the debt will be made through a Special Purpose Vehicle (SPV) to be known as the legacy bond limited and shared fairly among the debt holding banks.

The creation of the special purpose vehicle was also to ensuretransparency and fairness in the payment of all the banks involved.

But documents sighted by Citi Business News reveal that the parties involved have begun raising concerns following moves by the Finance Ministry to rather pay the BDCs through their own private accounts and ditch the agreed plan.

Letters sighted by Citi Business News to authorities cautioned that any move by government not to go by the agreement will have dire consequences on the transparency and equitable allocation of funds to the banks and also derail the restructuring objectives and the significant efforts made so far by all parties involved.

Citi Business News has learnt the Finance Ministry is expected to disburse 400 million cedis this month [September] to clear a large chunk of the debt, but sources familiar with the development say the cash may not go through the SPV as agreed by stakeholders.

According to sources within the Ministry of Finance, Hon. Cassiel Ato Forson, the deputy minister in charge of the ministry was tasked to ensure the agreed processes between the parties and government is carried through.

Implications on banking industry

Some of the stakeholders who spoke to Citi Business News said the move if carried out by the Finance Ministry will have dire consequence on the banking industry.

According to them if the money is not paid transparently, some banks will just go under.

One person with knowledge of the matter told Citi Business News “2011, 2013, payments were made but some banks didn’t get their fair share. However they financed the bulk payment of this. So with that we should learn something out of it and structure this well.

Our poor mothers and fathers have their savings with all these banks and no bank is exempted here. Huge banks are involved and they can all just be terribly affected, so it is important the protocols, the ministry of finance, the Bank of Ghana, the Ghana Association of Bankers, even the Chamber of Bulk distributors follow what they came up with to the latter. No one’s person’s interest should be looked at against the common interest of all these parties because we have been doing an 18 month work on this there were meetings with the President , the Vice President and all that. It’s gone to that level so as a country we must make sure we follow through this process and ensure that the right thing is done’.

Running Mate of the New Patriotic Party (NPP) who was once a formor deputy governor of the Bank of Ghana Alhaji Dr. Mahamudu Bawumia earlier warned the banking industry will be hit with a crisis if government fails to settle debts owed bulk oil distribution companies soon.

“The BDC debt is a real threat to the banking system. Our banking system will suffer a crisis if we do not take care. The banks are exposed to the BDCs some of the banks if the BDCs don’t pay will collapse”, he said.

The Bank of Ghana, in its first financial stability report for 2016 revealed that bad loans on the books of commercial banks in the country increased by 14.9 percent to 4.52 billion cedis in 2015 against the 2.72 billion cedis recorded in 2014.



Source: citifmonline.com

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