Realist, not conformist analysis of the latest financial, business and political news

Ghana’s Databank Could Be All Sorts Of Things But It’s Not Menzgold

A claim that Databank is the next Menzgold and that therefore the authorities should move in and take it over to protect depositors’ funds. Hey, it’s possible that there’s something dodgy about Databank and it’s even possible that there are problems there. But that’s very different from saying that it’s a Ponzi scheme like Menzgold. We’d politely suggest that the member of parliament complaining about this is less than fully informed.

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Despite explanations advanced by management of Databank that there is no cause for worry by depositors whose funds are with the financial institution, the Member of Parliament (MP) for Bolgatanga Central, Hon Isaac Adongo thinks otherwise and envisages its challenges are akin to a similar incident surrounding the infamous Menzgold scandal.[/perfectpullquote]

Menzgold was a Ponzi scheme. That means that investments today were paid out tomorrow in the fictitious profits made by those who invested yesterday. That’s the only way anyone could possibly be paying 10% a month on working in the gold market.

Databank really just isn’t quite like that. This part could be true:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] According to him, the explanation by Databank for panic withdrawals may not be wholly true especially given the current situation and the constricted regulatory environment that asset management companies have endured over the past 24 months. In a statement copied to, he said “Databank and its Chief Executive Officer of Databank have been making frantic efforts to convince customers that their deposits are safe with the bank. The CEO and the bank insist that the challenges facing the company are not peculiar but as a result of panic withdrawals by customers resulting from fears triggered by the Menzgold problem.” [/perfectpullquote]

Well, yes, this is the problem with even well run banks when there’s a financial panic. All banks are maturity mismatched. They borrow short term from depositors and lend long term to borrowers. If all depositors come to get their money back on the same day then they can’t have it – the money’s out in those loans. This is simply a structural feature of a fractional reserve banking system. It’s well known as one too, that’s why we’ve got central banks, to lend to illiquid but solvent banks if this happens.

Menzgold has caused a certain worry about financial institutions in Ghana. It would be surprising if a bank wasn’t calming its depositor base as a result.

We tend to think that there’s more to this complaint, perhaps this:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] I note the CEO’s touting of their unique business model that he claims is underpinned by good corporate governance, ethical conduct and pursuit of reasonable returns. This is strange and laughable and so because which ethical business will sign a contract with its founder and owner, the Finance Minister to act as its transaction advisor in borrowing for Government without the slightest shame of conflict of interest? If you were not in pursuit of abnormal and greedy interest rates, why did you invest in BEIGE when their interest rates were higher than the industry average? As the Minister of Finance is on his way to engage in a road show to borrow $3 billion, his own company, Databank is his transaction advisor whom he will pay huge sums of money to as fees. Is this the kind of ethics the CEO is referring to at Databank? [/perfectpullquote]

Ah, it’s one politician complaining about another one. This might not have anything to do with the financial system at all let alone a direct comparison of Databank to Menzgold.

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