With up to nine billion cedis ($1.6 billion) of savings trapped in investments, Ghana’s Securities and Exchange Commission (SEC) has placed a ban on the concerned fund managers while investigating whether they violated investment rules.
A total of 21 money managers allegedly invested client cash into illiquid assets. Now, investors looking to withdraw funds from the firms are unable to access their money. As part of the probe, the markets regulator has blocked the fund managers from accepting new investments from the public over fears they may use the funds to pay out existing investors.
“We’ve asked them not to take new investments. Because they are under pressure, if they take, they might give it to the old investors,” Head of Policy Research at the SEC, Emmanuel Ashong-Katai, said.
The ongoing liquidity crisis was caused by the central bank’s recent overhaul of the banking industry. The clampdown has reduced the number of lenders by a third and led to a shutdown of 23 savings and loans companies. From 155 in 2017, the number of fund managers dropped to 140 in 2018, according to the SEC, as some firms voluntarily closed up while the licenses of others were revoked.
The cleanup also triggered a run on deposits that later affected the 25 billion-cedis fund-management industry. As a result, up to nine billion cedis of investments are trapped with at least 70,000 investors reportedly becoming collateral damage.
Giving a breakdown, the SEC says five billion cedis is trapped in unlisted bonds, direct private-equity stakes and other deals with small and medium-sized businesses. While another four billion cedis is tied up in fixed-term investments with banks rescued during the cleanup, savings and loans companies, and microlenders.
SEC rules prohibit fund managers from directly underwriting corporate debt or taking straight private-equity positions. Although they can lend to businesses via reputable financial institutions as well as invest in private-equity firms, which then acquires stakes in companies.
Considering the likely negative impacts the clampdown and ensuing events could have on the markets and financial system as a whole, a senior finance lecturer at the University of Ghana, Lord Mensah told Bloomberg that the harm has been done and assets need to be protected while trying to regain investors’ confidence in the system.
“It’s cutting across all the finance houses and when it happens like that the government needs to step in to build confidence again,” Mensah said. “There’s nothing we can do apart from making sure that we create that necessary environment to regain investors’ confidence again.”
However, a bailout of 11.2 billion cedis for lenders that were closed down and another package of about 925 million cedis for microcredit companies whose licenses were revoked are helping to release some of the funds locked up in those segments, Bloomberg says.
The SEC has not disclosed all the fund managers it is investigating in a forensic audit that is due to be completed by the end of the year. And despite the seemingly gloomy outlook for the banking industry after the shakeup, rating agency Moody’s sees banks in Ghana reporting higher earnings in 2019.
