Bank of Ghana

Players in the banking industry has said respects the decision of the regulator of the industry to incresse the minimum capital requirement of commercial banks to GHC400 million.

This is more than 200 percent increment from GH¢120million to GH¢400million with a December, 2018 deadline.

But, are of the view that management of the various banks must now make a case to shareholders on why they need more capital for their operations.

“Shareholders, not regulatory or policy instruments, will determine whether the banking industry will see mergers and acquisitions,” Mr. Alhassan Andani, President of the Ghana Association of Bankers (GAB), has said.

“The Central Bank certainly knows the kind of risk spread of the industry and how capital should be allocated. We need to go back and re-tweak our business cases and for those of us who have been in business for a long time will look at our past performances and see how to justify to our shareholders what we will do with the higher capital,” he said.

“The issue is that if they raise the bar and you cannot meet it, you can reach out to each other but it cannot be legislated or driven by regulatory instruments. It is the shareholders who must determine whether they have the capacity or not.

Then they [shareholders] can reach out to another bank that has a similar profile and risk appetite as they have then they can start a conversation. But that is entirely a shareholder conversation. The BoG announcement is only an indication to the market but mergers and acquisitions cannot be directed by regulation,” he said in an interview.

The BoG had earlier said that, it expects that all commercial banks will be able to meet the new minimum capital requirement of GH¢400 million by the December 2018 deadline.

The central bank said it was ready to have discussions with the banks if they decided to engage in mergers or acquisitions to enable them to meet the new minimum capital.

Answering questions before the Public Accounts Committee (PAC) in Accra on Tuesday, the First Deputy Governor of the BoG, Dr Maxwell Opoku-Afari, said the central bank would not, however, entertain any disorderly consolidations.

He was at the PAC with other officials of the BoG to answer questions on the operations of the central bank as captured in the Auditor General’s Report.

The Chairman of the PAC, Mr James Avedzi, wanted to know whether the BoG expected mergers, acquisitions or collapses in the banking industry, following the recent announcement to increase the minimum capital requirements for universal banks.

In response, Dr Opoku-Afari said: “Our expectation is that businesses that have been licensed to operate as banks will meet this minimum capital requirement to be able to position themselves to support the economic activities, the growth and the transformation agenda.

“If by doing that they see it as appropriate to talk among themselves to come up with measures for acquisition, that is also part of the process. What the BoG does not want is disorderly consolidations.”

He added that, “If the banks among themselves begin to talk and see that as the best way for them to meet the capitalisation, we are ready to have that discussion

Prior to the recapitalisation decision, several financial analysts have opined that the economy has too many banks and need to trim the number, which currently stands at 34, to less than 20 with higher capitalisation which will lead to bigger banks that can support aggressive economic growth.

The Finance Minister, Mr. Ken Ofori-Atta a couple of weeks ago, noted that the economy needs five strong and well capitalised local banks so that the banking system will be well represented.

“Without a robust financial system, certainly, the issues of industrialisation and Ghana as a hub when it comes to finance become problematic, and our challenge then is: how do we manage the high number of banks that we have so that we can become the magnet we want to become?” Mr. Ofori-Atta asked.

“Lending rates should be in single digit and this will allow the private sector to come to you to borrow and that seems to me to be a challenge as we look at the number of banks and what we have to do to strengthen them,” he added

The decision to increase the minimum capital requirement for commercial banks was taken after engagement with players in the banking industry.

The implication is that any bank that fails to meet the new capital requirement by December 2018 will lose its licence to operate.

Dr Opoku-Afari explained that the new bank capitalisation from GH¢120 million to GH¢400 million was part of measures to support the economic vision and transformation agenda of the country.

“One of the reforms is to ensure that banks are adequately capitalised so that they will be able to support their activities in line with the exposures of the banks, the degree of sophistication and the degree of risk they are exposed to,” he said.

Dr Opoku-Afari said the central bank carried out due diligence on banks before granting them the licence to operate, adding that the banking sector regulator offered licence to only companies that had strategic activities and goals.

He indicated that the central bank, as a last resort, was strengthening its supervisory capacity and introducing monitoring requirements to ensure that only qualified financial institutions were given the licence to operate.

“We are enforcing prudential requirements to ensure that institutions licensed to undertake a specific business go by the specific business in the interest of the public,” he said.

-Adnan Adams Mohammed

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