Some four banks, including CAL Bank Limited, are in a tussle for an opportunity to buy the local operations of Indian state-owned lender, Bank of Baroda Ghana Limited, after it decided to voluntarily liquidate its business and pull out of the country by December 31, this year.
Among the banks is the Sahel Sahara Bank, which is looking for a third source of funding to plug a capital deficit that will arise from its ongoing merger with Omni Bank Ghana Limited.
A source in one of the interested banks told the GRAPHIC BUSINESS that Baroda had valued its net worth around GH¢200 million and a winner-bank was expected to now pay about GH¢186 million in exchange for, mainly, Baroda’s deposits.
The source tipped CAL Bank as “a likely winner” because “it is in a position to pay cash outright”.
“We wanted to make it like a merger, so that by the first quarter next year we can raise the funds and pay them (Baroda) off so that they can go, but they just want cash,” it said.
CAL Bank’s Head of Investor Relations, Ms Dzifa Amegashie, confirmed her outfit’s interest in Baroda to the GRAPHIC BUSINESS on December 14 but said discussions were in their early stages, with no due diligence done yet.
“We have not even exchanged books or anything yet,” Ms Amegashie said, explaining that a successful deal with
Baroda “will just be a bonus” to CAL Bank’s march to the GH¢400 million recapitalisation.
“It is not as though we need Baroda or any other bank to make our GH¢400 million. We already have it,” she said.
CAL Bank, on December 17, got shareholders’ approval to transfer GH¢50 million from income surplus to stated capital, bringing to GH¢400 million the amount the bank now has in stated capital.
Reason for liquidation
One source, who has been briefed on Baroda’s decision to wind up its Ghana operations, said it was based on a resolve by the parent company not “to accumulate excess capital that it will not have need for”.
In September last year, the Bank of Ghana (BoG) directed all banks to recapitalise to a minimum of GH¢400 million – more than 233 per cent higher than the current requirement of GH¢120 million – by the end of this year.
The 2017 audited accounts of Baroda, which operates just three branches in two regions, showed that its capital adequacy ratio was 75.95 per cent, compared to the industry average of 17.9 per cent, as reported by the BoG for that year.
When contacted, the Head of the Banking Supervision Department of the central bank, Mr Osei Gyasi, confirmed Baroda’s intentions to wind up its operations but said the BoG had since reviewed the application to pull out and a decision on the exit strategy would be communicated soon.
He declined to speak on specifics.
The Bank of Baroda also declined to comment, explaining that the exit process was being worked out with the BoG.
The latest development makes Baroda the first casualty of the BoG’s recent capital demand, which is the steepest, yet has the shortest time frame, in the history of recapitalisation in the country, according to central bank records.
An analyst and retired Deputy Governor of the BoG, Mr Emmanuel Asiedu-Mante, and a lawyer with special interest in restructuring and insolvency, Mr Jacob Saah, said in separate interviews that Baroda would become the first bank to have voluntarily liquidated in Ghana should the process go through successfully.
Although a complex procedure, Mr Asiedu-Mante insisted it would not have “any significant impact on the banking sector, describing it rather as a mark of ‘prudence’ on the part of Baroda”.
“They are there to make money and they are looking at the volume of business and the returns they are generating. To them, it is not worth inputting a lot more capital beyond what they have done,” Mr Asiedu-Mante, who retired in 2006, after seven years as Deputy Governor, said.
Baroda currently has 24 members of staff, of which seven are expatriates. It operates a lean business that services mainly the Indian community.
The bank gives fewer loans but invests more in government and BoG papers, resulting in a healthy balance sheet that has always won it the most profitable bank of the year award at the annual Ghana Banking Awards.
In its 2017 audited financial statements, total assets dwarfed liabilities by 75 per cent, with loans and deposits ending the year at GH¢143.13 million and GH¢181.45 million, respectively.
GRAPHIC BUSINESS understands that the bank currently has some GH¢200 million in BoG open marketing operation (OMO) instruments.
Mr Saah, who said he had almost three decades’ experience, explained that Baroda’s voluntary winding up would be done in line with the Companies Code, 1963 (Act 179) and Section 139 of the Banks and Specialised Deposits-taking Institutions Act, 2016 (Act 930).
The section requires the central bank to certify in writing that the bank or institution in question “would be capable on its voluntary winding up, of meeting the obligations it has in respect of depositors and creditors as the obligations accrue”.
Should the BoG think otherwise, the act mandates the central bank to, at any stage of the process, appoint a receiver to wind up the bank, in line with sections 123 to 139, which talk about official liquidation.
The lawyer said the winding up process could take up to a year, beyond which the bank will be required to call a general meeting to explain to creditors how their obligations will be settled.
Mr Saah was involved in the official liquidation of Meridien BIAO Bank, the Bank for Housing and Construction and the Co-operative Bank in the late 1990s and early 2000s.
The paper is reliably informed that Baroda had opted to sell its deposits and loans, retrieve its funds from the BoG and leave, a decision the central bank kicked against, citing the implication on the banking sector.
Consequently, the paper understands that the three interested banks have variously discussed a workable arrangement that will allow a winning bank to purchase the deposits and selected assets of Baroda.
Mr Saah, who is also a member of the Ghana Association of Restructuring and Insolvency Advisors (GARIA), said a successful sale of the deposits reduced “the complexity of the process”.
“The liquidator will have to recover debts owed to the bank, deal with employee payments and issues, sell assets and pay creditors. Treatment of the deposits is the most complex,” he added.
A financial economist, Dr Sam Mensah, said the special nature of banks could make the process difficult.
“Banks are not like manufacturing companies that can just say ‘I have stopped production, I have closed down and I am leaving,’ Dr Mensah, the Executive Chairman of SEM Capital, said.
“You have to wind up slowly and it can take even a couple of years,” Dr Mensah, a professor of Finance with over 30 years’ experience in finance and capital market operations, said.