Local banks explain why they snubbed $1.8 billion COCOBOD loan

Twenty-one out of the 29 banks in the country did not contribute to the loan which will be used to purchase cocoa beans in the 2015/6 cocoa season.

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Local banks in the Ghana have been criticised for rejecting the Ghana Cocoa Board's invitation to participate in raising the $1.8 billion Cocoa Syndicated Loan for the 2016 crop season.

Twenty-one out of the 29 banks in the country did not contribute to the loan which will be used to purchase cocoa beans in the 2015/6 cocoa season.

Ecobank Ghana was the only local-based banks that COCOBOD invited to participate in the syndication process, took part in the transaction which was signed on September 17 in Paris, France.

But some of the banks who spoke the Daily Graphic blamed their abstinence on the low interest on the loan at 1.19 per cent.

According to the paper, out of the 22 banks that participated in this year's exercise, 18 of them were entirely foreign institutions; six had local presence but participated through their parent banks and only one, Ecobank Ghana, participated directly.

Addresing the concern, the Executive Director of the Ghana Association of Bankers (GAB), , said the development was "an indication of the type of economy we have."

he said in a chat on September 18.

Currently, the Bank of Ghana’s regulations require universal banks to maintain a minimum capital of GH¢120 million (US$31.5 million), which brings the total capitalisation of the banking industry to GH¢3.48 billion or US$915.7 million.

Some of the banks the paper spoke to said the syndication offered low interest on the loan.

" a banking sector chief executive asked on condition of anonymity.

another CEO added.

The Public Affairs Manager of the COCOBOD, Mr Noah Amenyah, however, said the board, just like any entity, would always prioritise value over cost hence the decision to push for loan syndication with low interest rates.

he added.

The absence of the local banks thus confirmed long-held views that banks in the country have failed to build the necessary capacity that will make it possible for them to underwrite big ticket transactions such as the COCOBOD loan, the Eurobonds and the US$4.9 billion currently used to develop the Tweneboah-Enyera-Ntomme (TEN) oil and gas project.

The same applies to the insurance industry, where local insurers are unable to provide insurance cover for the countries maiden Floating, Production, Storage and Offloading (FPSO) vessel currently used in the Jubilee Field.

The net result of these failures from the local financial sector has been capital flight from the country to offshore accounts, which every now and then exert pressure on the Ghana cedi to depreciate.

In the cocoa loan, for instance, the principal, as well as about US$1.8 million will be repatriated to the participating banks when the board completes repayment of the loan in August, next year.

Although the inflows will help shore up the country's reserves, stabilise the cedi and support the cocoa sector, the repatriation of the profits and principal will lead to deepening the capital flight in the system, which is estimated at US$1.2 billion per annum.

COCOBOD, which has been syndicating funds for cocoa bean purchases since 1992, sources for the funds in a way similar to what every loan-seeking business does in the financial market worldwide.

Mr Amenyah explained in an interview.

Mr Amenyah added. — GB

Source: Daily Graphic

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