Monday, 30 October 2017

Banks preparing to meet new minimum capital requirement

Banks preparing to meet new minimum capital requirement

Adnan Adams Mohammed

The banking industry in Ghana will soon have more robust and well capitalized banks to help strengthen the economy of the country.

This is due to the fact that, commercial banks in the country have up to December, 2018 to raise their minimum capital to GHC400 million as announced by the Bank of Ghana.

Already, the HFC Bank, The Royal Bank, First Atlantic Bank, and Access Bank among others have declared their preparedness to recapitalise within no time.

The Access Bank Plc, which is the majority shareholder of Access Bank Ghana, has announced its intention to inject additional capital into the Bank’s operations in Ghana before end of Q1 in 2018 after all regulatory requirements are fulfilled.

The Tier 1 capital forms part of the Bank’s recapitalization exercise, which began last year with the Bank selling its shares through an IPO and subsequently being listed on the Ghana Stock Exchange as the first Ghanaian Bank with Nigerian heritage to do so.

While this move will enable Access Bank Ghana meet the new capital requirement of GHS 400 million, the new capital is also expected to enhance the capacity of Access Bank Ghana to undertake large ticket transactions in key sectors of the economy.

The Group Managing Director/CEO of Access Bank Plc, Mr. Herbert Wigwe, has noted that Ghana is an important market within the Access Bank Group and its impressive performance over the past eight years provides the basis for further investments to boost its growth aspirations.

He said: “Our new investment into Access Bank Ghana signals the confidence and trust we have in the Ghanaian economy as a safe, peaceful and thriving place to do business. In pursuing the Bank’s vision of building the World’s Most Respected African Bank, we are making strategic decisions in the various markets we operate to position our banking franchise favorably in the market to support the development agenda of the economies”.

The news of an additional investment by Access Bank Plc demonstrates the long standing partnership between Access Bank Ghana and its majority shareholder.

When launching its operations in 2009, Access Bank Ghana was quoted as one of the most capitalized banks in the country and intends to keep this reputation as it drives its strategy to become one of the top tier banks in Ghana.

Access Bank Plc is ranked as one of the top three banks in Nigeria and amongst the top 20 banks in Africa by assets and capital.

Also, reacting to the new directive to the banks, the Fidelity Bank has welcomed a move by the Bank of Ghana aimed at reducing the number of banks operating in the country.

Managing Director of the bank, Jim Baiden argues that the intention of the central bank to encourage banks to consolidate will be more beneficial to Ghana’s capital market.

He is convinced that “a small country like Ghana with a population of 27 million people cannot have 36 banks. It’s over the top. Nigeria with their population of around 200 million have just 25 banks. We are over banked”.

He added that consolidating will enable banks to provide better services and be better positioned to address the needs of the clients and expand as well.

Jim Baiden opined that, “I think we should rather consolidate and do financial deepening so that at least we bring on board Ghanaians who are unbanked. That is what we should be doing because it’s a move in the right direction”.

Moreover, the Managing Director of Access Bank Ghana, Mr. Dolapo Ogundimu has also noted that, the new capital would strengthen the capital base of the Bank and enable it to take advantage of new business opportunities in the operating environment.

“The Bank of Ghana had long stated its plan to increase the minimum capital requirement for banks in Ghana so we have always had this under our radar as it was also consistent with our strategy to build a sustainable bank”.

He further assured customers and other stakeholders of the Bank’s well-cushioned liquidity and capital base to drive its business strategy in the coming years.

 Experts have detailed the various options for the banks to meet their new minimum capital requirement such as, mergers and acquisition and inward or additional investments.

But, according to some experts in the financial industry, it will really be difficult to record  mergers among the banks due to the lack of trust and belief nature of the Ghanaians.

The immediate former Director General of the Securities and Exchange Commission (SEC), Dr Adu Anane-Antwi at a roundtable organized by the Institute of Financial and Economic Journalists (IFEJ) emphasized that some bank mergers may suffer setbacks due to lack of trust.

He explains that, the lack of trust among businesses and companies in Ghana is a major challenge to the industry.

But, surprisingly the management of HFC Bank has noted that two banks approached HFC after the Bank of Ghana’s announcement to find out whether they can come together as single bank.

However, the management remained silent on announcing the identities of the said two banks.

“We have started preliminary discussions with two banks that have approached us since the announcement was made and if there is progress, then you will see some kind of merger or an acquisition take place. But remember we will not just want to merge or acquire other banks but we will consider whether we have some common grounds especially when it comes to culture which will impact on our way of doing business together seamlessly,” the HFC Managing Director, Anthony Jordan has said.

Mr. Jordan confirmed that, there have been conversations within the banking industry around mergers and acquisitions among the banks; and HFC is open to offers from other banks.

HFC was one of the three banks that applied for the purchase of UT and Capital banks.

Mr Jordan affirmed that, even without any merger and acquisition or any kind of inward investments, HFC will meet the new capital.

“We intend to meet this new threshold long before the deadline in December 2018. There are strategic reasons why we will meet the deadline. Based on the discussions I have had with our majority shareholder the Republic Bank, we have decided to reinject the additional capital to meet the requirement of GH¢400 million just after our next Annual General Meeting which is set to take place in April 2018”, he said.

Notwithstanding, he downplayed calls by some other stakeholders within the financial industry for the central bank to take a second look at the increase which they deemed to be too high.

Mr. Jordan stated that: “I will not say the amount set by the regulator is too much. One has to look at it from the context of the problems and the losses some banks have run into in times past. We must look at capital requirement as a buffer, which is able to help the banks to stay in business if there are shocks within the industry.

The Governor of the Bank of Ghana (BoG), Dr. Ernest Addison recently announced that the central bank has received some proposals from banks pushing for mergers and takeovers, following the announcement of the new capital requirement.

The Bank of Ghana increased the capital requirement of banks from 120 million cedis to 400 million cedis in September 2017.

The increment was applauded by some financial observers as a good development that may force mergers in the banking industry to reduce the growing number of banks in the country.

Touching on the issue, Dr. Anane-Antwi said the lack of corporate governance may push some banks to conceal some critical information that may affect the mergers.

“We have always talked about mergers and acquisitions even straight from table top businesses. I discussed this with a friend who said ‘I can assure you mergers and acquisition will never be prominent in Ghana because we don’t trust each other’. We have lived for sixty years but still no trust so everybody wants to deal with their individual businesses. What belongs to me is not the same as what belongs to us” he said.

He pointed out that mergers among local businesses have suffered setbacks due to breach of trust and dishonesty. “As soon as you come together, within three weeks there is a problem.”.