Thursday, September 7, 2017

The Central Bank is a threat to the financial system

This blog post was first published May 13th 2014, raising the alarm on the Central Bank of The Gambia with specific reference to its apparent inability or unwillingness or both to perform one of its most important statutory functions - the supervision of commercial banks to protect depositors by ensuring their solvency.   At the time, we are not aware of the extent of the CBG role in managing 22 illicit accounts on behalf of the Office of the President.  These accounts were operated as they would have under a normal commercial banking operations.

Sidi Sanneh


Perhaps it is time for the Central Bank The Gambia (CBG) to be "taken over" by a competent set of central bankers because it is under-performing under current and previous managements.  It has been so sloppily managed that it were a commercial bank it would have been declared bankrupt.

Not that central banks don't go broke; they do.  The Reserve Bank of Zimbabwe, as its central bank is called, went broke with the bank's balance sheet succumbing to Zimbabwe's 100,000 percent hyper inflation.  But bankrupt central banks, however rare, rely of the public national treasury i.e. the tax payer.

We do not expect the CBG to find itself in a Zimbabwe-like situation, but unless prudence and strict adherence for banking principles are observed, the financial system and the economy they were trying to safe, as they claim, that led them to "take over" Access and Keystone Banks, will come crashing down, and with it the hopes, dreams and aspirations of million and a half Gambians.

Last week Monday, we were greeted by the news that two Nigerian-owned banks were being taking over by the Central Bank for reasons that we have covered on several blogs and Facebook posts.  Exactly a week later, we were greeted with yet another press release from CBG informing us that Access Bank has been returned to its owners but not before they paid US$ 15.2 million (D600 million), and a promise to pay another US$ 4.8 million (D198 million).

These payments could not have been for the minimum capital requirement (MCR) that the CBG raised to D200 million, to be paid in two tranches.  This is so because the payments are huge and besides we were assured back in January 2013 that 12 of the 13 banks operating in The Gambia had fulfilled this requirement. Cronyism and weak management aside, the Central Bank has been caught fudging the books and cooking up up numbers that led to IMF sanctions in the past.  It is only reasonable, to be skeptical about any  figure that they brandish and an explanation they give.   Transparency is lacking in the CBG, and it is that lack of transparency that is the bigger enemy than the critics of the regime and CBG management.

In its May 5th, 2014 press release which the official government newspaper refused to carry for reasons only known to the management of the Daily Observer, Gambians were told that the CBG was stepping in to take over Access and Keystone Banks, and in doing so assures respective clients and the public that "the two banks would continue business as usual, and depositors are assured that the banks have ample liquidity to meet current and future obligations. '

We find the first press release very misleading, coined to conceal the real financial health of the two banks and maybe other banks.  There may be ample liquidity to cater to the needs of the current need of clients, but it is highly questionable whether it can address future obligation which is part of the reason why the CBG stepped in in the first instance.

The return of Access Bank to its owner after a week under CBG supervision and why its owners are required to pay US$15.2 million now and an additional US$4.8 million for a total of US$20 million or approximately D800 million to recapitalize the bank.  This figure reveals that Access Bank was operating underwater for an extended period time and yet no signal or red flags were raised by the CBG, thus exposing depositors to unacceptable risk until last week.

One  plausible explanation is the Access Bank was carrying in its books a huge none performing loans.  It is not surprising that the financial system was exposed to this dangerous level because of the weak supervisory capacity at the CBG as evidenced by one IMF report after another warning about this condition.  What we would like to know, what was the cause of the exposure?  Who were Access Bank's clients who accumulated such huge sums, and for what purposes were they contracted.