The National Investment Bank (NIB) and the Agricultural Development Bank (ADB) must re-orient their focus and mandate to serve the development needs of the country, a Professor of Finance at the Department of Finance at the University of Ghana Business School, Joshua Y. Abor, has suggested.
To this end, he suggested that the NIB and ADB must be made to operate under the new Development Finance Act passed this year, which regulates National Development Banks (NDBs).
“The current discussion about retooling of NIB and ADB to come under the new Development Finance Act, 2020 probably might be the way to go and to get these banks to re-orient their focus and mandate to do real development banking,” he said on Tuesday in an interview with the Ghanaian Times after the NDB Validation Workshop.
Organised by the African Center for Economic Transformation (ACET), the workshop was to validate a new study on the NIB and ADB titled Challenges and Changes: The Political Economy of NDBs – NIB and ADB in Perspective.
Funded by AFD, it formed part of a four- country study being conducted by ACET on NDBs in Ghana, Rwanda, Cote D I’voire and Tunisia to assess their viability and how these institutions can serve the development needs of their respective countries.
Prof. Abor, who is the Lead Consultant for the NDBs study said the two banks could be placed under the retail development banking arrangement under the new Act, saying “we believe this will help them achieve their objectives of real development banks.”
According to him, though established as NDBs the two banks were operating as universal banks, adding that NDBs were set up to achieve socio-economic objectives and were not profit driven.
“If we want to look at these institutions as development banks then we need to look beyond profit making, so performance will not be looked at in terms of profitability but also in terms of the developmental impact,” he said.
Prof. Abor said if the two operated as NDBs, government could hold 30 per cent stake in each bank and encourage impact investors who were not profit oriented to invest in the banks.
Prof. Abor asserted that NDBs were established, among others, due to the difficulty of Small and Medium-Scale Enterprises to secure funding.
“Commercial banks are said to be pro-cyclical and when the economy is doing well then you see them in the market providing credit because they know borrowers will be in the position to re-pay, but during crisis they hold back and put their money in government treasury bills and bonds and risk-free assets,” he said.
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Prof. Abor stressed that NDBs served as counter-cyclical roles, and they become active during crisis and pumped liquidity into the market to get economy back on track for it not to collapse.
The Senior Director of Research and Policy Engagments at ACET, Dr Edward K. A Brown, said the objective of the study was to stimulate discussions on the mandate of the two banks, highlight their current situation as well as their opportunities and challenges for policy actions by the government.
Dr Brown observed that the survival of the banks were critical to the development of the country and must therefore be supported to thrive.
The Country Director of AFD, Christophe Cottet said NDBs had been the catalyst for the development of Europe, America and Asia.
BY KINGSLEY ASARE
He said the establishment NDBs could be “major tools to develop Ghana” and promote investment in strategic sectors of the economy such as infrastructure, agriculture and manufacturing.