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Not all banks need GH¢400m to be effective — Banking expert

By: Emmanuel Bruce
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Dr Richmond Atuahene
Dr Richmond Atuahene

The Bank of Ghana (BoG) needs to take a second look at its new minimum capital requirement of GH¢400 million because not all banks in the country need that amount of capital to be able to operate effectively, the Managing Partner at JPCANN Associates Limited, Mr Jonathan Prince Cann, has said.

He said some of the banks had their own business models that they ran which might necessarily not require GH¢400 million, hence asking all banks to recapitalise to that amount was not the right way to go.

In an interview with the GRAPHIC BUSINESS on the sidelines of the first session of the Accra Speaks series, he said: “If you look at some of the banks, they are involved in the big ticket transactions and will require more capital, but some of them are not really into the big ticket oil and gas and mining projects and might not require that amount of money.”

“We have banks whose focus is on small and medium enterprises (SME) financing which does not require GH¢400 million. If they are being run well and have good capital ratio, quality assets and a good liquidity ratio, then they don’t necessarily have to recapitalise to GH¢400 million,” he stated.

“Normally, these are the indicators that BoG will use to assess the strength of a bank so if they are there, then asking them to recapitalise to GH¢400 million will rather create problems for them because they will now be forced to be lending quite unprofessionally in order to ensure that the money is being used,” he added.

Problem for banks
Mr Cann pointed out that raising the GH¢400 million would be a major problem to a lot of banks, considering the fact that some of them were even struggling to meet the GH¢120 million minimum capital requirement.

“Even with the GH¢120 million, some of them are struggling to meet it so for you to get GH¢400 million, it’s a problem,” he stated.

Categorising banks
Mr Cann, therefore, urged the central bank to rather look at categorising the universal banks into different tiers.

“They are on the same market and doing universal banking but we need to look at it and categorise them and decide which bank is required to do what and who is restricted from doing what,” he noted.

“Your module will tell exactly what kind of tier you fall within and the kind of capital you need to bring in, with maybe GH¢400 million being the capital you will need if you want to do the big ticket transactions,” he added.

He said higher risk did not translate to equity and, therefore, if a bank could not manage its risks well, then it wouldn’t matter the amount of capital it had.

“If you go to Nigeria, Kenya and South Africa that we are using as an example, their minimum capital amount is nowhere near ours but their banks are solid and doing well,” he pointed out.

A banking expert, Dr Richmond Atuahene, who was the keynote speaker at the forum, also in an interview with the GRAPHIC BUSINESS supported the need to categorise the banks in the country.

He said the era where banks with universal licence could do everything must be a thing of the past.

“We need to put them in different classes and let them know that if you are a commercial bank you can only finance purchase of raw materials and if you are a development bank, yours is the construction sector and big ticket transactions,” he stated.

“Putting everybody in one basket creates problems and we should follow the example of Nigeria who decided to categorise its banks in 2011,” he noted.

Granting licences to politicians
Dr Atuahene also advised the BoG not to grant banking licences to politically connected people because it was against the ethics of banking.

“Once you give a licence to a politically exposed person, he has influence even on the regulator and under the BOG Act (612), the BoG is supposed have operational, financial and personnel independence,” he indicated.

“If you have operational independence, nobody can change or influence you,” he added.

Deposit protection scheme
Dr Atuahene also called for the need not to rush the implementation of the Deposit Protection Scheme.

“It is a good initiative but it should be thought through properly to ensure that it serves the purpose for which it is being established,” he said. — GB