Graphic Business News

Bank recapitalisation fails to trigger mergers

By: Kester Aburam Korankye
Dr Ernest Addison — Govenor,BOG
Dr Ernest Addison — Govenor,BOG

IT is 13 days to the end of Bank of Ghana’s new directive on recapitalisation, yet not a single successful consolidation has been concluded.

This is in spite of the fact that BoG’s intention, at the time of setting out on the recapitalisation exercise, was to trigger consolidation of banks.

In November 2017, the Governor of the BoG, Dr Ernest Addison, said the thrust of increasing the minimum capital was to foster consolidation among banks to essentially reduce their number and create stronger and larger banks.

Dr Addison was speaking to the GRAPHIC BUSINESS after the announcement of the raised minimum capital requirement.

At the time, 30 banks (after the collapse of five banks in August 2017) serviced the country of about 30 million people.

With annual gross domestic product (GDP) of close to $40 billion, the bank numbers were a curious case of too many lenders chasing virtually the same money, especially when compared to Nigeria and South Africa, whose economies are estimated to be worth US$550 billion and US$400 billion, respectively.

Unlike in Ghana, 25 and 20 banks serve some 56 million and 190 million people in Nigeria and South Africa, respectively, making Ghana’s bank numbers a curious spectacle to analysts.

So, it was understandable why consolidation would be one of the objectives.

However, it appears that  objective may not be achieved when the exercise is completed on December 31.

Short deadline
The road to recapitalise banks started on September 11 last year, when the BoG compelled universal banks in the country  to increase their minimum stated capital from GH¢120 million to GH¢400 million by December 31.

Although this was not the first time the banking industry had been challenged with a compulsory minimum capital raise, the key difference this time was the short deadline of one year, three months.

As a result, the Association of Indigenous Universal Banks, in July this year, petitioned the President, Nana Akufo Addo, imploring him to extend the deadline for them to meet the new capital requirement.

 “Your Excellency, as already indicated, the current average stated capital of each indigenous bank is about GH¢120million; each bank is, therefore, required to raise an additional equity capital of about GH¢280million.

“This can be a herculean task to achieve within one year,” the association stated.

Although the petition was received in good faith by the President, the BoG have since not extended the deadline, rather giving an indication at the last Monetary Policy Committee (MPC) news conference that the deadline would be stayed.

Consolidation of local banks
With the clock ticking to the deadline, an expert in banking, and the Coverage banker for Financial Institutions (FIs), Non Bank (FIs) and Global Development Organisations at Barclays bank, Mr Solomon Kwashie Kofigah, told the GRAPHIC BUSINESS that mergers in the industry were not expected from banks with foreign majority share ownership but from local banks. 

He said given that foreign banks in the industry relied on fresh capital injection from their parent entities to meet the new capital requirement, the targeted banks for consolidation, were essentially the local banks which were struggling, and had shown no promising signs to soar.
“If you look at the foreign banks, most of them are almost there”, he said.

He, however, said although Sahel-Sahara Bank, which is a foreign bank, was yet to meet the new capital requirement, it was unclear if the bank’s announced  merger talks with Omini bank would materialise before December 31.

“That merger talk with Omini bank, I don’t think will materialise because if you look at Omini, they need fresh capital injection,” he said.

Given that some local banks are yet to meet the raised stated capital requirement, Mr Kofigah said further forced consolidation of local banks was expected before December 31.

“The BoG can force them to merge because they have the power but it comes with its own consequences and the government may be cautious about it,” he said.

Earlier, the BoG had forced the consolidation of five local banks based on their deteriorating asset quality, inadequate capital and liquidity challenges faced by the merged banks, reducing the number of local banks from 16 to 11.

Prior to the forced merger, there were 34 universal banks in the country.

Of the number, 18 had foreign majority share ownership while 16 of them had local majority share ownership.
Out of the 18 foreign majority owned banks, eight were Nigerian banks.

Nigeria example
 In 2005, when the Central Bank of Nigeria (CBN) undertook a similar recapitalisation exercise that saw the minimum capital for banks in Nigeria raised to N25 billion (US$192.2. million1) from N1 billion (US$7.7 million1) for existing banks and N2 billion (US$15.4 million1) for new entrants, the total number of banks in Nigeria reduced from 89 to 25 on completion of the exercise.