Graphic Business News

Five ‘special’ banks out of the woods

By: Emmanuel Bruce
Dr Ernest Addison- Governor of the Bank of Ghana

THE five indigenous banks which were put under the support of the newly created Ghana Amalgamated Trust Limited (GAT) have finally met the new capital requirement of GH¢400 million, the Governor of the Bank of Ghana, Dr Ernest Addison has confirmed.

The recapitalisation of the banks: OMNI/BSIC, Agricultural Development Bank (ADB), National Investment Bank (NIB), Universal Merchant Bank (UMB), and Prudential Bank, comes nine months after the expiry of the deadline for all universal banks in the country to increase their minimum capital from GH¢120 million to GH¢400 million.

Responding to questions from the media after the Monetary Policy Committee (MPC) meeting on September 19, in Accra, Dr Addisson said “So far as

I know, the NIB recapitalisation has been completed. The government has provided its share of what is required to recapitalise NIB.

“In the last week or so, we have had all the others also completing their recapitalisation,” he noted.

But while all thought the matter on the GAT banks had been put to rest, the governor dropped yet another issue about NIB, saying “the only sticky point is the case of the NIB whose capital requirement appears to be larger than we had originally envisaged so obviously, NIB is a bank that we need to do some more work on but remember it is a state-owned bank so the considerations are very different.”
For whatever reason, he did not provide further details on the issue, leaving room for yet another round of debate on the ‘sticky issue’.

Why the long wait
On why the BoG decided to allow these banks to recapitalise nine months after the deadline, Dr Addisson said these were banks that the government had guaranteed to support and that was the only reason why their licences were not revoked.

“The government had provided the necessary guarantees that if they face any difficulties, it was going to step in and out of these five banks, two of them (NIB and ADB) are state-owned banks,” he said.

The public had also been awaiting reports on the merger of two banks. Many attempts to have the management of GHL Bank and the First National

Bank on their proposed merger had not been forthcoming.

However, the governor broke the ice when he revealed that the merger between the two had now been fully completed at last.

Formation of GAT
Last December, GAT, a government-sponsored special purpose vehicle (SPV), received provisional approval from the Bank of Ghana (BoG) to invest in the five banks to help build up their capitals to GH¢400 million.

The move was the government’s response to constant appeals by indigenous banks that were facing challenges in recapitalising to GH¢400 million, a statement from the Ministry of Finance said at the time.

Update on banking clean up
Dr Addison also emphasised that the clean-up in the financial sector was over.

“All the problem institutions in the sector have been taken out and we think that should end the exercise,” he said.

On the issue of rural banks, he said that would be dealt with by the Apex Bank with support from the BoG.

“We will deal with the Apex Bank to see how best to deal with some of the problem institutions in that sector,” he said.

“But largely, the reforms that we intended to put in place over the last two years have been very successful and completed and most of the weaker institutions that were driving up operational costs and making lending rates high are out of the system,” he added.

“If you take the microfinance segment, for instance, these were the institutions that were setting up high deposit rates despite their inefficiencies. I understand the deposit rate in that segment has now collapsed from 30 per cent to around 15 per cent, which is what we expected,” he said.

He said the central bank expected the reduction in the deposit rate to have a knock down effect on all lending rates and all interest rates in the financial sector.

Reforms boost industry’s assets
Dr Addison also indicated that the banking sector remained well capitalised, solvent, liquid, efficient and profitable, with improved financial soundness indicators, adding that “the latest assessment shows marked improvement in banks’ performance which is reflective of the positive impact of the recent reforms.”

“At the start of the reforms in August 2017, total assets were GH₵89.1 billion for a sector that had 36 banks, and two years after the reform process started, total assets have increased to GH₵115.2 billion at the end of August 2019, even with 23 banks.

“In the same direction, total deposits have improved from GH₵55.7 billion to GH₵76.0 billion over the same comparative period, reflecting a stronger deposit base, owing to more trust and confidence in the banking sector with fewer but stronger banks,” he said.

He said banks were beginning to refocus on their core mandate of financial intermediation based on the strong capital base after recapitalisation.

“The industry’s Capital Adequacy Ratio (CAR), computed in accordance with the new Capital Requirement Directive (CRD) under the Basel II/III capital framework, stands at 19.8 per cent in August 2019, well above the 13 per cent minimum regulatory benchmark. 

Asset quality has continued to improve with a decline in the non-performing loans (NPL) ratio from 21.3 per cent in August 2018 to 17.8 per cent in August 2019,” he stated.