Corporate Governance expert and CEO of Salman Partners & Financial Ltd., Dr. Richmond Akwasi Atuahene, has said the 21 percent annual interest on the Ghana Amalgamated Trust (GAT) is unreasonably high and will become an albatross around the neck of banks that are bailed out with the funds.

The GAT is a special purpose vehicle and an intervention by government to support five local banks – namely NIB, ADB, UMB, Prudential, OmniBSIC – which could not meet the GH¢400million minimum capital by the December 2018 deadline.

The GAT will raise funds through a bond structured for five years and given to the banks as zero-coupon bonds. What this means is that the banks will not pay the interest (21 percent annually) on the bond yearly, but will do so after the end of the fifth year with the principal. The GAT will also take equities in the banks and exit after the five years.

However, commenting on this at the Ghana Most Respected CEOs Breakfast Meeting organised by the B&FT yesterday, with the theme ‘Saving the Banking and Finance Sector’, Dr. Atuahene said it will eventually become suicidal for the five banks as it will be difficult for them to pay the money back.

“For me, I totally disagree with that model because when you take equity you don’t pay interest. They make it look like equity but it is debt. The GAT people should sit down with government and look at how they can do it. It is not Basel II-compliant.

“The interest rate is unreasonably high, especially because it is under sovereign guarantee. It is guaranteed by the state, so why do we charge such astronomical figure on it. Treasury bills are 18 percent, so why 21 percent interest on the GAT? And don’t forget, there is a transactional fee the banks have to pay. So, for me it is very expensive looking at the current economic situation,” he said.

Bailout?

He argues that the ideal way to save the five local banks is a direct bailout from government, as other developed countries did when their banks were in distress.

“The best way, for me, is that government should have bailed them out straightaway – like it happened in Britain some time ago. The government bailed the banks out and added to its deficit. Today, those banks have managed to pay what they took from government. I don’t understand why we want to go through some unorthodox way,” he said.

But commenting on the issue during the plenary discussion, the Managing Director of GAT, Eric Nana Otoo, said the interest on the loan is competitive and reasonable considering the risk involved.

“The 21 percent is competitive. It may seem too high, but when you look at the market risk it is very reasonable. The six-year Treasury bond in February was priced at 21 percent. The Treasury bond is a government bond, and that one has lower risk than our five-year bond. And pricing them at the same level, the investors are even asking us to give them more than the 21 percent. So, we believe it is very reasonable,” he said.

Other issues raised about the GAT bordered on its legal formation. Commenting on this, Managing Partner of Bentsi-Enchil, Letsa & Ankomah law firm, Ace Ankomah, opined that it is legal and doesn’t breach the Banks and Specialised Deposit Taking Institutions Act.

Source: thebftonline.com