Banks recapitalization: players panic over raising needed capital

capital requirement
capital requirement

As the time get closer to the deadline for all the banks to meet the new minimum capital requirement set by Bank of Ghana, majority of the banks are not securing the needed new capital.

They have therefore devised several means to raise the needed funds.

Some banks have announced their intention of going to the stock market to raise funds to meet the GHC400 million minimum capital requirement, others are looking at merging while others are also looking at raising private equity investment.

According to information gathered, those which are looking at listing to raise the needed the capital are currently calculating the time required to raise the money due needed.

However, there are concerns that investors on the stock market may not provide all the money needed by these banks before the deadline arrives.

So far, Access bank, Energy bank, Republic bank, among others have all declared their intentions of hitting the stock market to raise money.

According to some financial observers, time required for raising funds on the stock market is very important since it will have an impact on the results that could be realized.

Meanwhile, Cal Bank has disclosed that with the audited financials of the bank, the company is just GHC50 million away from meeting the GHC400 million capital requirement by end of December 2018.

The Managing Director of Cal Bank, Frank Adu explained that the bank has been able to raise some GHC250 million through its surplus profit after the books of the bank was audited end of March 2018.

“We have been allowed to transfer GHC250 million from income surplus to stated capital. So now our stated capital goes to GHC350 million which puts us GHC50 million short of the Bank of Ghana requirement of GHC400 million. Now, if the Bank of Ghana will allow the banks to do an interim audit in the course of the year then we would be able to even come next month and be able to transfer another GHC50 million out of income surplus”

“As we speak right now at the end of March our income surplus per our management account as published in the newspapers was GHC310 million. If we take GHC300 million from that which is the GHC250 million plus GHC50 million, we will meet the GHC400 million and still have GHC10 million in income surplus. So effectively, we have met the GHC400 million just by those transfers,” Mr. Adu explained.

The Managing Director who was speaking at the bank’s Annual General Meeting held, last week, also disclosed that the bank recorded a profit after tax of GHC145.2 million and GHC152.9 million by the group.

He explained that this was achieved by an improvement in operating income by 25.9 percent and a reduction in total operating cost by 30.5 percent.

Access Bank, on its part is expected to raise GHC300 million through a renounceable Rights Issue this month. Shareholders of the Bank at its Extra Ordinary General Meeting held in December, 2017 gave approval for the move.

The offer will be in a ratio of one new share for every six existing shares. The ex-rights and qualifying dates for the offer have been set for May 17 and 21.

The proceeds from the offer will be used to meet the minimum capital requirement set by the Central Bank.

Also, The Republic Bank, which has also announced its intention to raise GHC255 million from the stock market maintained that external investors can always be called upon to complement what local investors can provide.

“Raising this money is not a problem at all. Republic bank is an international bank worth billions. We can always fall on our mother company to provide the funds,” the bank has assured.

However, Sam Bediako Asante, C.E.O of Sambed Financial Consult, warns that it will not be all rosy to raise funds as needed by the banks from the GSE since investors will need convincing, tangible reasons to put their money into a company.

“Money is scarce and investors are always careful where they put their money. So the performance of a bank will be a key factor. It is very important because it will determine how they gain,” he said.

Although, the Managing Director of the Ghana Stock Exchange, Kofi Yamoah has pointed out that the 2017 good performance of the stock exchange was largely due the financial returns of listed banks, several Ghanaians are of the view that the delisting of UT Bank from the stock market after its collapse and the takeover of some banks through the BoG’s use of its regulatory and supervision powers has showen that banks are not performing well on the market.

In this regard, as the banks compete this year for the limited funds on the market there are fears they may not be able to meet their targets.

Consequently, in all this, financial advisors have urged Ghanaians to take advantage of listing of banks on the stock exchange to own part of the banking sector.

The central bank last year raised the minimum capital requirement to GH¢400 million, equivalent to nearly US$100 million and commercial banks in the country have up to December 2018 to raise the amount, which represents a 233.3 percent increase from the current minimum capital of GH¢120 million.

Banks were last recapitalized in 2012, when the BoG asked them to raise their stated capital from GH¢60 million at the time to the current GH¢120 million.

The deputy finance Minister Kwaku Kwarteng last month urged local banks in the country to merge in order to meet the minimum capital requirement to avoid folding up. That, according to him, will ensure stability of the financial sector.

The Bank of Ghana (BoG) has already announced it will soon issue a set of guidelines to facilitate the merging and acquisitions of banks in the country which cannot meet the new minimum capital requirement.

The announcement which was done by the Second Deputy Governor of the Central Bank, Elsie Awadzi last month is coming months ahead of the deadline for banks to increase their capital base by some GH¢280 million.

Already, the BoG has indicated it would not extend the December deadline for meeting the minimum capital requirement for banks.

The strong warning is coming at a time that some local banks are pushing for President Akufo-Addo to extend the deadline by four more years to 2022.

This has resulted in the President establishing a 10-member committee which should have started working by now to look into the concerns of local banks.

But, Head of Banking Supervision, Osei Gyasi said there are no plans for now to review that deadline.

“Come December 31, 2018, it is expected that every bank should have met the new capital requirement,” he said.

He added that as far as management of the Central Bank is concerned that directive to banks still stands.

For some industry experts, it is clear that the Bank of Ghana would stand its grounds in terms in terms of ensuring that every bank meets the new minimum capital requirement by December 31.

This has raised a lot of questions about the effectiveness of the presidential committee that was set up to look into several challenges facing the local banks.

Key among them would be, recommending to the President to possibly extend the deadline for local banks in meeting the new capital requirement of GH¢400 million.

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