DBG is a key pillar in our efforts to recover from the effects of the COVID-19 pandemic and quickly resume our economic transformation path as articulated in the Ghana CARES Obantanpa Programme. It is intended to be a model institution that supports the financial system to play its role in supporting the private sector to expand and create jobs.
DBG will help address two important constraints in our financial system, namely the lack of long-term capital, and the lack of adequate funding to the productive sectors of the economy.
Currently less than 15% of loans given out by banks are for 5 years or longer, making investment in long gestation project very difficult for our private sector. Agriculture and manufacturing sector receive around 4% and 8% respectively of banks loans compared to their shares in GDP and employment and potential for driving economic transformation.
Primary Focus Areas of DBG will be:
- Agribusiness, with a focus on off-farm value-chain activities
- Manufacturing
- ICT, software development and allied services, including Business-Process Outsourcing, and Tourism
- Boosting homeownership through affordable and longer tenure Mortgage Finance
- Infrastructure financing
DBG is not similar to the existing commercial banks that we have in the country. It is a non-deposit taking Wholesale bank. DBG will neither give retail nor direct business loans, like the former Bank for Housing and Construction, NIB, ADB, and the likes. It will rather provide funds to the existing commercial banks and other qualifying financial institutions to provide long-term lending and other innovative products that are presently lacking in the system. The bank will therefore complement and strengthen the operations of existing financial institutions.
It is important to state that since independence, this is the first time we are establishing a bank of this nature. It is a model along the lines of the German Development Bank – KfW, which played a pivotal role in the post-World War II reconstruction and transformation of the German economy.
Through DBG, Government will be able to further strengthen its support to the private sector to spearhead economic growth and transformation. DBG is an instrument to ensure long term finance to the private sector on a sustainable basis.
Government therefore expects DBG to be a financially sustainable institution that is able to raise long term funds from the domestic and international capital markets and from international financial institutions, based on its own balance sheet. To this end, Government is taking pains to ensure that DBG has a strong governance structure with professional and independent Board and Management. A process to select the Board and Management on a competitive basis is currently underway.
Why a New Bank; why not use one of the existing state banks?
Work on the DBG started in 2018 with a Task Force of industry experts established by Government to recommend the best approach to establish a modern and dynamic development bank. Based on the recommendation of the Task Force, Government decided to set up DBG as a new non-deposit-taking-wholesale-bank under the Companies Act.
DBG, as a wholesale and non-deposit taking bank, requires no branch network and minimal staff. It will therefore be very costly – financially and in terms of closure of branches and employment loss – to try to convert ADB or NIB into a viable modern development bank.
The advantage we foresee of a greenfield approach is that one gets to start from a clean slate, with no legacy financial, governance and other issues. This allows us to focus on the future and move straight into setting up DBG equipped with modern and sound design principles.
The greenfield approach also has the potential to attract more private and international institutional capital as we have witnessed with EIB’s €170 million facility. It also the Government's plan to attract other shareholders, both domestic and international, so as to increase DBG’s capital base and also reduce the government’s share over time.
Transformational Development Banks
Ladies and gentlemen of the media, despite the unsuccessful experience in Ghana and in many African countries, development banks have been instrumental in driving economic transformation elsewhere. Many industrialized countries have development banks or similar institutions to provide investment finance to their SMEs or to encourage investment in new and promising, but risky economic activities.
Examples of Transformational Development Banks include, Japan Development Bank, Korean Development Bank, Development Bank Singapore, Brazilian Development Bank, KfW (Germany) and Development Bank Nigeria.
Capitalization of the DBG
As I indicated in my last press briefing on 9th May, 2021, the bank will be launched in July 2021. We are aiming to establish DBG with an initial Government of Ghana equity contribution of $250 million of which US$200 million has already been paid. We aim to increase DBG’s lending capacity by raising additional funds from domestic and international private and institutional investors. The World Bank is providing US$250 million, KfW is providing EUR 46.5 million, we are also in discussions with the AfDB to be a key partner in the establishment of the bank.
DBG will pay back the loans that Government has taken on its behalf from the international financial institutions. Government therefore sees its contribution to DBG as investments that should be paid back; all the more reason we will insist on the professional management of the bank.