Graphic Business News

Race to recapitalise: 5 Local banks cross borderline • 3 in merger talks, 5 make frantic rush for capital

By: Maclean Kwofi
Dr Ernest Addison — Governor, BoG
Dr Ernest Addison — Governor, BoG

WITH 13 days to the end of the recapitalisation date, the GRAPHIC BUSINESS is reliably informed that only five out of the 12 banks indigenous ownership have successfully met the GH¢400 million new minimum capital requirement set by the Bank of Ghana (BoG).

Out of the eight, the paper understands that three are also either in merger talks among themselves or in talks with other foreign banks to raise the needed capital in order to recapitalise.

Even with the three merger discussions currently ongoing, analysts doubt whether the processes involved in merging such banks could be completed within the stipulated period.

The fate of the remaining five banks, the GRAPHIC BUSINESS at the time of going to press on December 17, was still unknown to the public, as the regulator and the banks involved remain tight-lipped.

Support mechanism
As the deadline draws nearer, an economist, Mr Daniel Ameteye Anim, said the central bank needed to introduce a support mechanism that would see it participate in the merger process of the struggling banks.

This, he said was crucial to help speed up the processes and procedures in order for the banks to keep their universal licences beyond the December 31 deadline.

“I am of the view that this is the time that BoG must intervene in the merger process by directing the struggling banks to merge looking at their individual strength, focus and the deadline in general,” he said.

The banks, according to him, need to also open up and approach BoG to ask for help in order to recapitalise successfully.

“The local banks should also be clear themselves that, at this time it will be practically impossible to get fresh investors to help them cross the deadline and so, the only option is merge with other banks.

“BoG should use every ethical and transparent means available to intervene in order to save the remaining eight banks that are presently racing against the deadline,” he said.

Maintain confidence
The economist underscored the need for the financial sector to be given the needed support as that sector of the economy played critical role in the development of the country.

The sector also plays an intermediary role in mobilising excess liquidity from the people to support other sectors of the economy, hence the need to handle it with care, he said.

He indicated that it would be very difficult should these banks lose their licences to operate as universal banks, especially at the time when some seven banks had been liquidated in the same year.

The implication, Mr Anim mentioned was to reduce the confidence that the people presently reposed in the economy in terms of nurturing entrepreneurship if the local banks were not given the needed support.

How it started 
The central bank in accordance with Section 28 (1) of the Banks & Specialised Deposit Taking Institutions Act 2016 Act 930 announced for the information of banks and the general public that it had revised upward the minimum paid up capital for existing banks and new entrants from GH₵120 million to a new level of GH₵400 million.

In this regard, the banks were directed to meet the required minimum capital through fresh capital injection, capitalisation of income surplus, a combination of fresh capital injection, and capitalisation of income surplus.

They were not allowed to capitalise revaluation reserves, reserves on financial instruments through other comprehensive income, statutory reserves, credit risk reserves and unaudited profit.

Detail processes to capitalise
All existing banks had up to December 31, 2018 to meet the minimum paid up capital requirement by maintaining a minimum unimpaired paid up capital as per Section 28(1) & (3) of the Act 930 of GHS400million by the end of December 2018.

In computing impairment of paid up capital all banks were reminded in addition to the said provisions of Section 28(3) of the Act 930, that losses shall not be set of against the credit risk reserve and unaudited profit but shall be adjusted with unaudited losses.

Under the same regime, all banks which have been granted approval in principle shall comply with the new minimum capital levels by the end of December 2018.

All pending applications for banking license, without approval in principle were required to meet the new minimum capital requirement and the feasibility reports accompanying such applications had to be amended.

Non-compliance with the new minimum paid up capital requirement shall be dealt with in accordance with Section 33 of the Act 930.

Building resilient banks
But successful compliance, Mr Anim who is also the Executive Director of Policy Initiative for Economic Development, stated would ensure that the single obligor limit of the banks that have impact on trade finance and fee income generation was improved significantly.

With the present state of the industry, he said the development was to make banks more efficient, especially at a time when the central bank had stopped granting waivers for single obligor limits.