The Minister for Finance, Ken Ofori-Atta has revealed that the Development Bank Ghana (DBG) will 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.
According to him, the bank will therefore complement and strengthen the operations of existing financial institutions.
Addressing Journalists following the government's signing of a €170m loan agreement with the European Investment Bank in Brussels, he said "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"
He added that since independence, this is the first time the country is establishing a bank of this nature adding that 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, 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"
Ken Ofori-Atta also stressed that 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.
He mentioned that the government is taking pains to ensure that DBG has a strong governance structure with professional and independent Board and Management stressing that a process to select the Board and Management on a competitive basis is currently underway.
Explaining the need for a new bank and not the use of one of the existing state banks, he said "Work on the DBG started in 2018 with a Task Force of industry experts established by 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"
Ken Ofori-Atta mentioned that DBG, as a wholesale and non-deposit-taking bank requires no branch network and minimal staff.
He also stated 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 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"
Touching on transformational development banks, the Finance Minister said "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 industrialized 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"
He cited the Japan Development Bank, Korean Development Bank, Development Bank Singapore, Brazilian Development Bank, KfW (Germany), and Development Bank Nigeria as Examples of the Transformational Development Banks.
On the capitalization of the DBG, he said "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"
Mr. Ofori-Atta mentioned that DBG will pay back the loans that Government has taken on its behalf from the international financial institutions.
He stated that the government, therefore, sees its contribution to DBG as investments that should be paid back hence the professional management of the bank.
Highlighting what is next for DBG he again said "As I indicated in my last press briefing on 9th May 2021, the bank will be launch 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 percent respectively in bank lending, and only about 15 percent of bank loans exceed 5 years in tenure"
Ken Ofori-Atta explained that the launch of DBG this year, will address fundamental financing constraints likewise provide loans with tenures of up to 15 years, with a focus on key transformational sectors—agribusiness, manufacturing, ITC, tourism, and housing.
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Story by: Joshua Kwabena Smith