The savings and loans companies and financial institutions collapsed by the central bank had a combined negative net worth of GH¢2.3 billion, the release from the Bank of Ghana has shown.
Negative net worth is a condition in which a company’s liabilities exceed its assets plus shareholders equity.
According to the Bank of Ghana’s statement, First Allied Savings and Loans had the largest negative net worth with a figure in excess of GH¢661 million.
Typically, negative net worth can occur because a company borrowed too much money and subsequently had its income fall as its debt payments rose.
The Bank of Ghana stated that its investigation found out that the collapsed companies, among others, used depositors’ funds to finance personal or related-party projects or businesses on terms that were not commercial, leading to little or no income accruing to the relevant savings and loans companies or finance house companies and thereby compounding their liquidity challenges.
“In line with the Government’s commitment to protecting depositors’ funds, the Government has made funds available to enable the Receiver pay depositors after their claims are validated.
The Receiver will in due course make an announcement with regards to when and where payments will be made. The Receiver will also indicate documents required from depositors to facilitate the validation of claims and orderly payment of validated deposits.
Other creditors of the failed institutions will be settled by the Receiver upon validation of their claims and to the extent that the Receiver is able to realise value from the remaining assets of these institutions,” the statement.