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Converting NIB, adb to DBG would’ve been ‘very costly’ – Ofori-Atta

Finance Minister Ken Ofori-Atta has explained that the government decided to set up the Development Bank Ghana (DBG) from the scratch rather than converting one of the state-owned commercials banks such as National Investment Bank (NIB) and the Agricultural Development Bank (adb) for that purpose because it would have been too costly going for the latter option.

DBG is an integral feature of the GH¢100-billion Ghana Cares ‘Obaatampa’ Project, which is seeing to the revitalisation of the Ghanaian economy following the onset of COVID-19.

The Ministry of Finance and the European Investment Bank (EIB) recently signed an agreement for the provision of a €170-million facility for the establishment of DBG.

This signing event took place on Wednesday, 19 May 2021, when President Nana Addo Dankwa Akufo-Addo held a meeting with the President of EIB, Dr Werner Hoyer, as part of his official visit to Belgium.

The €170-million facility, according Dr Hoyer, is the largest facility provided by EIB for the establishment of a development bank in Africa or for any other project, for that matter, on the continent.

Speaking at the signing ceremony, President Akufo-Addo noted that “the Development Bank Ghana is going to play a very important part in the rapid economic transformation of Ghana, following the onset of COVID-19.”

According to him, “we want to restructure the economy, and move it from being a mere producer and exporter of raw materials, to one that places much greater emphasis on value addition activities. We see this Bank (DBG) as one that will play a pivotal role in this”.

Dr Hoyer, for his part, was confident that the establishment of DBG will help unlock opportunities for growth in Ghana, as well assist in the rapid recovery of the Ghanaian economy from the ravages of COVID-19.

He noted that the establishment of the Bank is in line with the objectives of the European Union, and will help develop Ghana’s private sector, agri-business, manufacturing and ICT initiatives.

While describing the decision to establish DBG as “a wise one”, the EIB President added that the bank sees the partnership with Ghana as a fruitful one, indicating that the EIB will follow keenly the development and workings of DBG in Ghana.

Some critics, however, raised issues about the move to set up a new bank after the government, through the Bank of Ghana, collapsed some nine local banks in the financial sector clean-up exercise during President Akufo-Addo’s first term of office.

One of those critics is A Plus, who questioned why the Akufo-Addo administration spent more than GHS21 billion “to collapse banks that needed about GHS9 billion to survive” but now “borrowing 170 million euros to establish a new national bank when you already have NIB which is struggling; adb which is struggling”, as well as GCB Bank and CBG.

“Ghana beyond aid but you are borrowing money to start a national bank”, A Plus observed.

Addressing such criticisms at a press conference on Thursday, 20 May 2021, Mr Ofori-Atta said: “Work on the DBG started in 2018 with a task force of industry experts established by the government to recommend the best approach to establish a modern and dynamic development bank”.

Based on the recommendation of the task force, he said the government decided to set up DBG “as a new non-deposit-taking-wholesale-bank under the Companies Act”.

DBG, as a wholesale and non-deposit taking bank, Mr Ofori-Atta added, “requires no branch network and minimal staff”.

“It will, therefore, be very costly – financially and in terms of closure of branches and employment loss – to try to convert adb or NIB into a viable modern development bank”, he noted.

“The advantage we foresee of a greenfield approach is that one gets to start from a clean slate, with no legacy financial, governance and other issues. This allows us to focus on the future and move straight into setting up DBG equipped with modern and sound design principles”, Mr Ofori-Atta explained.

According to him, the greenfield approach also has the potential to attract more private and international institutional capital “as we have witnessed with EIB’s €170 million facility”.

“It also the government’s plan to attract other shareholders, both domestic and international, so as to increase DBG’s capital base and also reduce the government’s share over time”, he added.

Read the Finance Minister’s full statement below:

A New Engine for Ghana’s Economic Transformation

Good Evening Ladies and Gentlemen of the media, senior staff of the Ministry.

It is a pleasure to hold a press conference today on the back of the President of the Republic, Nana Akufo-Addo signing of a €170m loan agreement with the European Investment Bank in Brussels yesterday. As it was captured, the European Investment Bank, among other international development institutions, are supporting our effort to establish a new development finance institution here in Accra, the Development Bank Ghana (DBG).

DBG is a key pillar in our efforts to quickly recover from the effects of the COVID-19 pandemic and quickly resume our economic transformation path as articulated in the Ghana CARES/Obantanpa Programme. It is intended to be a model institution that supports the financial system to play its role in supporting the private sector to expand and create jobs.

DBG will help address two important constraints in our financial system, namely the lack of long-term funding, and the lack of adequate funding to the productive sectors of the economy.

Currently, less than 15% of loans given out by banks are for 5 years or longer, making investment in long gestation project very difficult for our private sector.

The agriculture and manufacturing sectors receive around 4% and 8%, respectively, of banks loans compared to their shares in GDP and employment and potential for driving economic transformation.

Primary Focus Areas of DBG will be:

Agribusiness, with a focus on off-farm value-chain activities Manufacturing ICT, software, and allied services, including Business-Process Outsourcing, and Tourism Boosting homeownership through affordable and longer tenure Mortgage Finance
DBG is not similar to the existing commercial banks that we have in the country. It is a non-deposit taking Wholesale bank. DBG will neither give retail nor direct business loans, like the former Bank for Housing and Construction, NIB, ADB, and the like. It will rather provide funds to the existing commercial banks and other qualifying financial institutions to provide long-term lending and other innovative products that are presently lacking in the system. The bank will, therefore, complement and strengthen the operations of existing financial institutions.

It is important to state that since independence, this is the first time we are establishing a bank of this nature. It is a model along the lines of the German Development Bank – KfW, which played a pivotal role in the post-World War II reconstruction and transformation of the German economy.

Through DBG, the government will be able to further strengthen its support to the private sector to spearhead economic growth and transformation. DBG is an instrument to ensure long term finance to the private sector on a sustainable basis.

The government, therefore, expects DBG to be a financially sustainable institution that is able to raise long term funds from the domestic and international capital markets and from international financial institutions, based on its own balance sheet. To this end, the government is taking pains to ensure that DBG has a strong governance structure with a professional and independent Board and management. A process to select the Board and Management on a competitive basis is currently underway.

Why a New Bank; why not use one of the existing state banks?

Work on the DBG started in 2018 with a Task Force of industry experts established by the government to recommend the best approach to establish a modern and dynamic development bank. Based on the recommendation of the Task Force, the government decided to set up DBG as a new non-deposit-taking-wholesale-bank under the Companies Act.

DBG, as a wholesale and non-deposit taking bank, requires no branch network and minimal staff. It will, therefore, be very costly – financially and in terms of closure of branches and employment loss – to try to convert adb or NIB into a viable modern development bank.

The advantage we foresee of a greenfield approach is that one gets to start from a clean slate, with no legacy financial, governance and other issues. This allows us to focus on the future and move straight into setting up DBG equipped with modern and sound design principles.

The greenfield approach also has the potential to attract more private and international institutional capital as we have witnessed with EIB’s €170 million facility. It also the government’s plan to attract other shareholders, both domestic and international, so as to increase DBG’s capital base and also reduce the government’s share over time.

Transformational Development Banks

Ladies and gentlemen of the media, despite the unsuccessful experience in Ghana and in many African countries, development banks have been instrumental in driving economic transformation elsewhere. Many industrialised countries have development banks or similar institutions to provide investment finance to their SMEs or to encourage investment in new and promising, but risky economic activities.

Examples of Transformational Development Banks include, Japan Development Bank, Korean Development Bank, Development Bank Singapore, Brazilian Development Bank, KfW (Germany) and Development Bank Nigeria.

Capitalisation of the DBG

As I indicated in my last press briefing on 9th May, 2021, the bank will be launched in July 2021. We are aiming to establish DBG with an initial Government of Ghana equity contribution of $250 million of which US$200 million has already been paid. We aim to increase DBG’s lending capacity by raising additional funds from domestic and international private and institutional investors. The World Bank is providing US$250 million, KfW is providing EUR 46.5 million, we are also talking to the AfDB to play part in the establishment of the bank.

DBG will pay back the loans that the government has taken on its behalf from the international financial institutions. The government, therefore, sees its contribution to DBG as investments that should be paid back; all the more reason we will insist on the professional management of the bank.

What next for DBG

As I indicated in my last press briefing on 9th May, 2021, the bank will be launched in July 2021, as part of one of the core pillars of the Ghana Cares program aims to achieve the following:

Economic transformation that requires that entrepreneurs in key productive sectors have access to long-term finance at affordable interest rates. Analysis done as part of the background technical work for establishing DBG found that in Ghana, agriculture and manufacturing receive around 4 and 8 per cent respectively in bank lending, and only about 15 per cent of bank loans exceed 5 years in tenure. The launch of DBG this year, will address fundamental financing constraint. It will provide loans with tenures of up to 15 years, with a focus on key transformational sectors—agribusiness, manufacturing, ITC, tourism, and housing. DBG will be a wholesale bank lending to retail banks to on-lend to SMEs. Interest rates will be set based on the need to support enterprises while at the same time ensuring financial sustainability of DBG. DBG will also operate a Partial Guarantee Window, and also a Digital Platform to facilitate factoring of invoices by SMEs. Government, learning from our national experience and also from global experiences regarding development banks, is determined to set up DBG so that it stands the test of time and supports Ghana’s economic transformation on a long-term basis. To this end, the government is taking extraordinary measures to ensure that DBG is well capitalised, and it has a strong and independent governance structure—including competitive international recruitment of its Board and Senior Management–to enable it to be run professionally and on a financially sustainable basis without recurrent recourse to the public purse
Closing remarks

Ladies and gentlemen of the media DBG builds on the platform of Government’s strong economic management over the past 4 years including:

Macroeconomic stability Reformed and strengthened financial sector Stronger national support for private business and continuing improvements to the policy and regulatory environment
Ladies and Gentlemen, our efforts to transform the economy, build decent homes, produce more of what we consume and create decent jobs with decent pay, particularly for young Ghanaians will be in vain if we do not build a strong financial sector that that has the confidence and courage to support our businessmen and women. And the set-up of DBG is to do just that! DBG will help access medium to long-term capital at affordable rates, and I am excited by DBG and what it can do for our private sector to lead in our economic transformation and job creation under the Ghana CARES Obaatanpa Programme!

Thank God for making me able to stand before you today. I give God all the glory for all he has done and continues to do in my life – a life which I have dedicated to Him for selfless service to people of Ghana. And above all, I am grateful for the occasion to serve under this government and passionately so, to the very best of my God-given ability.

Thank you.

Source: ClassFMonline.com

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