Finatrade faces imminent liquidation

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A commodity trading company, Finatrade, is said to have begun series of job cuts in anticipation of an eventual liquidation as the company is soaked in more than GH¢1 billion debt that is threatening the survival of some banks in the country.

The company, which is arguably the biggest commodity trading company in the country, is unable to meet its financial obligations to the banks, which is crippling the operations of about 26 local banks in the country.

The situation has sparked concerns that it might hurt the banking sector in ways similar to what caused the collapse of two major national banks, Bank for Housing and Construction and Cooperative Bank, about two decades ago.

Finatrade Group is indebted to the various banks to the tune of about GH¢1billion, almost half of the GH¢2.6 billion stated capital of the entire banking industry, and which boasts of nearly GH¢47 billion in total assets.

This, according to the Daily Graphic sources within the banking sector, is seriously hitting hard and threatening the survival of some banks.

The banks extended a lifeline credit facility to Finatrade and according to the company, bad business was obstructing its ability to honour its repayment schedule.

Blacklisted by banks

The company has consequently been blacklisted by some banks for its continuous default of several repayment schedules and as a result, the banks have threatened to institute legal action to retrieve the debts owed it.

The Daily Graphic has gathered that some of the banks have planned to attach the company’s assets through court actions in moves to recover the debts which are pushing up their non-performing loans.

Finatrade’s exposure to each bank goes beyond the single obligor limit of most of the banks it dealt with. (The limit beyond which you cannot exceed in giving out loan).

The Daily Graphic has also gathered that the Ghana Association of Bankers (GAB) is conducting a forensic audit to establish the actual extent of the banks’ exposure to Finatrade.

The Finatrade Group, in spite of its several subsidiaries in Ghana such as Sucatrade, Akuafo Adamfo, Dry Foods, Foods Inn and CCTC, embarked on massive expansion in the last five years that has significantly affected its cash flow and liquidity.

Expansion drive

The company reportedly borrowed from the banks to fund its expansion drive, while at the same time using short-term loans to support long-term capital projects, including a major venture into the cocoa sector of neigbouring Cote d’Ivoire.

High volatility in commodity prices, especially rice and sugar, has, however, resulted in trade losses that have affected the working capital of the company.

Some sources also told the Daily Graphic that the company incurred high losses in the manufacturing business due to the power crisis in Ghana – dumsor – and low economies of scale.

One of the company’s subsidiaries, Akuafo Adamfo, which is a licensed cocoa buying company, also defaulted in supplying cocoa beans to the Ghana Cocoa Board (COCOBOD) to meet a seed fund guarantee totalling GH¢18million.

“The venture is currently facing liquidity squeeze as a result of Akuafo Adamfo’s default, which has consequently led to the freezing of its working capital by the commercial banks,” a source told the Daily Graphic.

The net effect was that the group became heavily geared with unsustainable debt levels, thereby affecting the liquidity and operational performance across the group.

When the company was contacted, the Corporate Affairs Manager of the Finatrade Group, Mr John Awuni, in a telephone response said the company was still engaging its creditors on a repayment schedule.

“The country owes and everybody is in one way or an other indebted and so let us be careful and not do anything that will shake the public confidence in the banks,” Mr Awuni stated.

At the moment, all the banks are taking individual actions to recover the loans but sources tell Graphic Online when that fails, a joint action will be pursued.

Credit policies

Analysts fear that the rising levels of non-performing loans have forced many banks to review their credit policies in order to reduce bad debts on their books.

They also see the possibility of such a huge debt spreading across the banking industry as an indictment on managers in that sector, including the regulator – the Bank of Ghana.

The Bank of Ghana’s Economic and Financial Data shows that non-performing loans for the 11 months of 2015 stood at 14.1 per cent, as compared to 11.3 per cent at the end of December 2014.

However, the worry is that some banks have more than the average number as they have about 40 per cent of their loans books remaining non-performing, a condition which can force some of them to limit their credit creation capabilities, especially to the private sector.

 

Source: GraphicOnline

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