Collapse Of Ghanaian Banks: Causes, Preventive Assessments, And Major Initiatives

Causes of the Effect

Ghana is identified as one of the developing countries in the world. It comprises a few leading banks that set forth the primary activities in the country’s financial domain. Five major banks in Ghana that serve its farmers and other small business holders include UNI bank, UT Bank, Capital Bank, Construction Bank and Sovereign Bank. In this context, operations of credit mobilizations have been widely practiced in Ghana over the years. It was first started by the Canadian Catholic Missionaries in the country. Later on, banks were introduced across the national boundaries of Ghana.

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However, it was observed that these five major banks along with the other banks did not perform well. Correspondingly, it transcended the way to its collapse. During the collapse of the five major Ghanaian banks which were UT Bank Ltd, Capital Bank Ghana Ltd, Construction Bank, UNI Bank and Sovereign Bank, the containment at that moment was not possible due to the effect of different external factors such as instability of the macro economy and panic withdrawals. It was identified in the past few years that the financial crisis was not the major issue, which caused this huge problem, rather it was a collapse of a large number of banks, which accounted for bankruptcy of 30 financial institutions all at once.

In addition, 20 small and medium banks were further introduced in the country in the last quarter of the year 2013. Thus, looking at the current economic situation of the country, the financial institutions, which will be introduced in the county, will face the same problem of being solvent in a short span of time. One of the banks, which has been identified for being part of this case, is Unibank. This is considered to be the 3rd bank, which became insolvent after the severe economic effect faced in the country (iSolveAfrica, 2018).

Literature Review 

Causes of the Effect

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Gadugah (2018) stated that this issue led the authorities of the UT Bank, UNI Bank, Construction Bank, Sovereign Bank, Unibank, Capital as well as Beige Banks to be engaged in various acts in order to take initiatives towards minimizing the effect of the collapse of Ghanaian banks. Later on in the month of August, 2018, the Ghanaian banks took part in investigating the circumstances or the cause of this financial crisis of UT and Capital Bank. A special investigation was decided to be taken especially upon the five major banks of Ghana that suffered in a severe way due to their collapse. This was mainly to make sure that they could find the reasons or the factors, which were responsible for causing the collapse of the banking sector in Ghana, which largely affected the overall economy of the country.

Possible Preventive Assessment

They needed to do this because the leader of Ghanaian bank has a vision of introducing more of the accountability aspect among the five major banks. This would help these five banks along with the entire banking industry of Ghana to overcome the issue of financial crisis and to avert any recurrence of similar kind of situations in the future. At the same time, the responsible persons who led to this occurrence in the financial institutions were also being investigated side-by-side.

This approach towards improving and promoting the financial system of Ghanaian banks along with creating safety management systems involved various effective policies in these banks so that the citizens could deposit their savings. The measures were taken to stabilize the positions of UT Bank, UNI Bank, Capital Bank, Construction Bank and Sovereign Bank. In addition, conducting proper investigation can also significantly help in maintaining the overall activities for overcoming the issue of financial crisis in the respective sector (Gadugah, 2018).

Based on the study findings of Mensah (2004), the small financial institutions along with the medium financial institutions of Ghana had lesser employees with almost 6 to 29 employees across the country. On the other hand, there were about 30 to 99 employees among the medium institutions. With a maximum number of 128 employees in these two financial institutions, an unorganized form of practices was obvious to generate a drastic financial impact to the country’s economy (Mensah, 2004).

Possible Preventive Assessment

Focusing on the context, OECD (2008) opined that the incorporation of various practices in the management of financial institutions in Ghana can facilitate to minimize the massive economic effects due to the banking sector collapse. Creating budget provision by these institutions before their fiscal years in order to help the sufferers or the poor people such as farmers and small business owners by ensuring these provisions could be effective as well. Enabling supervision and discussing with the authorities of the financial sector of the country about merging the informal and the formal credit institutions could at least help the sufferers (OECD, 2008).

As per the Global Survey of Banks in Ghana (2009), it is identified that several improvements in the five major banks were able to develop through an establishment of the new payment system and the settlement system in order to aid in recovering the lost economy as well as to help the poor people of the country who suffered a major loss in life due to the occurrence of economic crisis. This initiative of establishing new systems was about introducing a smartcard that would favor every segment of the country along with the five banks which were UNI Bank, UT Bank, Construction Bank, Capital Bank and Sovereign Bank of Ghana. This step also led towards improvement in the quality of services provided by these five major banks in the country (PWC, 2009).

Other Possible Practices

On a similar note, the Oreoluwa (2011) also portrayed that apart from these assessment practices, authorities of UT Banks, Capital Bank, UNI Bank, and Sovereign Bank being amid the major components of the economy have the ability to improve the output of the country’s economy. This could have helped the people, who had suffered in the major financial crisis, if it were practiced back then. Since, SMEs lacked in gaining an access to make financial source cheaper and effective, it further affected the economic growth of Ghana as well as the whole African continent. Hence, providing an access to them could have favored economic growth (Oreoluwa, 2011).

Other Possible Practices

Akrong (2018) stated one of the suffering banks i.e. UNI Bank was handed over to an audit team to critically evaluate the causes of the collapse so that it can duly recover and make a comeback after the crisis. This initiative was taken just upon UNI bank because it had less capital as compared to that of the other four banks which were UT Bank, Construction Bank, Capital Bank and Sovereign Bank. UNI Bank had also faced a major loss due to the collapse of UT Bank and Capital Bank (Akrong, 2018). Some of the other reforms undertaken were related to the directors of the banks that suffered during the collapse of banks. They were provided an opportunity of holding any position in an organization but within the country.

Policies developed further also stated that the Prime Minister of the country or any Member of the Parliament would never take any initiative or get involved with the banks of the country. Even the President of the country was also stated that he/she would not engage in taking an appointment or nominate any of the members from the banks of the country. The banks in Ghana were also directed to follow the publications of financial statements of the five major banks and the other banks on a quarterly basis. As per the new established policy, they were told to consider the welfare and management of every board member banks such as UNI Bank, UT Bank, Sovereign Bank, Capital Bank and Construction Bank of Ghana (Afolabi, 2018).

Major Initiatives after the Effect

Mkpado & Arene (2007) stated that ensuring sustainability has always been a problem for the African countries, especially Ghana. This has led to a lack of economic performance. In the past years, a special program was launched under the name of Self-Help Group Linkage Programs. This program was initiated by the Agricultural Credit Guarantee Scheme Fund (ACGSF) for helping and encouraging poor farmers and the low business farmers to form a group with a mutual objective of making deposits and savings as per their choice. In return, the banks further allowed people to make savings. They also made a decision to provide the financial service of lending funds to these people (Mkpado & Arene, 2007). Furthermore, providing additional capital to these 5 major banks was another effective measure to stabilize the national economy of the country as well as benefit or help the suffering people of Ghana at the same time.

Major Initiatives after the Effect

Research Aim and Objective

The key aim of this research is to investigate the collapse of different banks in Ghana through an approach of secondary data analysis. The major objective of this research is as follows:

  • To understand the causes of the collapse of UT Bank, Capital Bank, Sovereign Bank, Construction Bank and UNI Bank of Ghana, the after math of the crisis, and most importantly various measures that have been and are still being taken to improve or minimize the long-term impact of this collapse of banks in Ghana

Research Philosophy

Philosophy is generally understood as the learning and a way of understanding the perspective of a philosopher on any event or situation that is projected in a descriptive way in a contextual form. Different answers and characteristics of a particular event are displayed, which are almost unknown to many people (Dorling Kindersley Limited, 2011). Thus, in order to conduct this research, realism philosophy will be used portraying the knowledge about the major economic effects faced by the five major Ghanaian banks (Gray, 2012).

A philosophical approach cited by numerous philosophers upon the event of economic effect faced by the Ghanaian banks have favored understanding the various causes that led to this event along with understanding the impact of this event on the national economy of Ghana. Among varying philosophical approaches, realism approach would help in interpreting the actual happenings of the event such as different unethical practices of the management members, which further led towards the development of this major issue. Obtained understanding about the event such as aftermath or the impact on the Ghanaian banks will be portrayed based on the real event facts. Realist philosopher’s works and understandings about this event will be represented (DVUSD, 2016).

This proposed study mostly involves research about the information of the collapse of the five Ghanaian banks along with the other banks that hampered the economy of the country to experience a major financial loss (Ogland, 2017). Using realism approach, amassing various interpretations cited by the researchers based on their understanding and obtaining factual information of the event would be the key approaches to be followed (DVUSD, 2016). Most of the works of different researchers have projected similar information regarding the event. Similar information has been obtained stating the major cause of the collapse of Ghanaian banks was due to the workers in the banking institutions, as they had followed an unethical approach and were unorganized as well.

Thus, realism philosophy will help in understanding the issue more clearly. Based on the real event, different measures, which have been taken by the banks after event and their measures, which are still being taken to minimize the economic effect will also be projected through the approach of realism. Through the use of secondary sources, this philosophy would help in understanding the statements made by the President of Ghana. Information obtained from reliable secondary sources in terms of facts would provide support to the approach of realism to understand and interpret the real scenario underlying the crisis. Commitment of different authorities such as the governments and higher officials of the country will also be cited in this proposed study.

Research Aim and Objective

The realism paradigm based on the element of ontology, reality or factual information, is generally imperfect and most often these types of information are referred to be addressed as per the probability. Application of this philosophy with respect to the element of epistemology would enable to assess the validity and reliability of the obtained information. Researcher under this type of element is considered as a transformative intellectual, who seek to change the world by projecting his/her perspectives about the information of a certain event so that people become aware and avoid this type of devastating occurrences (Sobh & Perry, 2005). Similarly, in keeping with the qualitative method, case study based research approach will be followed in the proposed study.

The impact of the five major banks in Ghana on the national economy as well as on international economy will also be highlighted through realism philosophy. First-order logic of realism approach will assist in interpreting the logical information portrayed by the philosophers in a descriptive manner (Smith, 2008). Hence, this approach will help in understanding the impact of economic crisis on Ghana and the people (Guzzini, 2017).

Research Design

Among the three major research approaches which include quantitative, qualitative, and mixed approach, a qualitative research method will be considered in this study to perform an analysis of the factual information relating to the collapse of financial institutions in Ghana. In order to acquire an in-depth understanding as well as facts about different Ghanaian banks and their varying approaches to deal with the economic crisis, qualitative research approach will be implemented (Williams, 2007). Qualitative approach can be of various methods that are actually based on the research to be performed.

This can help in exploring in-depth facts of the event, which is actually based upon the event or the scenario. Contextually, case study method will help in investigating the event of financial crisis in Ghana for obtaining more accurate research result (Jet, 2010). Likewise, secondary information will be used to collect multiple sources such as campaigns conducted, the statements made by the Ghanaian President and the governor of Ghanaian bank. Besides, various studies of different authors will also be used for understanding the underlying issue (Baxter & Jack, 2008). This approach will be implemented in order to investigate the factual case of different banks in Ghana, which collapsed and affected the economic structure of the whole country as well as the African economy. A clear understanding on this scenario will be made possible through the use of this approach (Cheng & Phillips, 2014).

In terms of data collection, for the proposed study, secondary data will be collected. This approach will help in obtaining real findings of the information collected by the government authorities in Ghana as well as financial authorities of the country with respect to their performance in the past and in the future. On a similar note, a secondary analysis will be performed in this proposed research study based on the events that have occurred, which will enable to derive reliable findings and draw a valid conclusion. This includes less consumption of time in analyzing the information collected by the researcher (Johnston, 2014). The proposed study will emphasize effective investigation and examination of the data that has already been obtained by numerous researchers. These reliable sources of information will facilitate in performing an in-depth analysis of the issue (Boslaugh, 2007).

Case study method will be used in gaining idea and being transparent about it. A close examination of the information of the banks in Ghana will further be projected to derive an understanding regarding the way in which their unorganized and unethical management aspect created a massive economic loss in the past. These approaches will also assist in undertaking measures to overcome the same crisis in the future. Along with this, the decisions of the government of Ghana in introducing newer banking systems as well as enabling change in the reform policies as well as insurances for the well being of the deprived people along with for economic improvement of the country will be evaluated as well.

Case study approach further comprises different forms, which include exploratory, descriptive, and explanatory cases. Among these three, a descriptive case study approach will be implemented for describing the nature of the collapse of the banks of Ghana. Narrative form of information will be portrayed in this research for highlighting issue. Understanding derived in the background and rationale section supports the descriptive approach for analyzing the information about this scenario. The descriptive findings obtained will help in understanding the effect of collapse of banks in Ghana (Zainal, 2007).

Using the descriptive case study method will further help in analyzing the assessment measures, which have been taken by the Ghanaian banks and the government of the country for minimizing the effect of huge economic crisis. Descriptive case study approach generally focuses on assessing the sequence of varied events that lead to a particular occurrence. The discovery of the causes can be truly made with this approach as it intends to validate the underlying effects that have sequentially led to causing the issue. Moreover, descriptive case studies can enable to make a complex scenario interesting to the audience.

This approach can enable to deliver brief accounts of the events as well as detailed narrations as required. A key factor that is required to be considered in case of descriptive case study approach is the use of descriptive theory. It is an imperative factor as the proper use of descriptive theory is required to evaluate the research question or phenomenon at hand. Thus, philosophical underpinnings will also be included in the proposed study. In addition, this approach will also assist in showing the reality of facts and information related with the country, its government, and the different financial institutions. The use of appropriate research design will help in analyzing the statement made by the governor of Ghanaian banks through the implementation of this descriptive method.

The evaluation of the event starting from the collapse of the Ghanaian banks along with different strategies and practices implemented by them, the current situation of the Ghanaian banks, and the effective strategies and practices for minimizing the past economic effect will be highlighted in this proposed research study. Additionally, it will also focus on dealing with the economic effect in the future. Various contributions of the government will also be evaluated based on its measures in the past and at present to not only improve the economic loss of the country but also to serve the poor people, who are still suffering in the country.

Through the implementation of considered approach, information based on the integration of the government and the other financial institutions in Ghana and different integrated measures will also be effective for underpinning the facts through the use of descriptive analytical approach (Sharif et.al, 2012). The descriptive case study method will assist in projecting the analysis of the information more accurately and descriptively. Activities and different approaches used in this analysis of the information related to the record of the Ghanaian banks will be projected along with the various actions or practices, which could minimize the effect of the financial crisis. The source that arose the collapsing of Ghanaian banks will also be highlighted descriptively. The detailed evaluation of the effective measures to avert the occurred scenario can facilitate the country to avoid similar drastic experience of long-term effect in the national economy (AECT, 2001).

Ethical Issues

Ethical issues in a research study are crucial parameter to consider and address. Hence, the foremost ethical issue in this proposed research study is related to the use of information, which was collected by the past researchers. In this context, the proposed research will ensure that the secondary data used in this research will be properly cited. Proper citation is a vital factor to ensure that due credit is given to the researcher who has conducted the study and published the same accordingly. Moreover, it will also ensure that there is no case of false referencing in the study. False referencing can undermine the credibility of the conducted study and lead to its failure.

It will further be ensured that the collected data are reliable and accurate in nature, as it will significantly help in underlying the issue faced by the financial institutions in Ghana. Furthermore, the proposed research will also make sure that the data, which will be used, are collected from reliable databases. Reliable databases generally provide valid and authenticated information which can be trusted and presented in a research study.

Moreover, it also facilitates to gather crucial and quality information in prompt manner. Additionally, reliable databases are always accessible to the audience which in turn can ensure validity of the conducted research. Besides, one of the key aspects of this research will be to ensure the study does not have any issue of plagiarism. Thus, it will further be ensured that no data infringement and data misrepresentation will be conducted. Such kind of indiscretion can cause a major issue while conducting a research. It will enable to ensure validity and reliability of the study and ascertain authenticity of research.

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