Monday, 26 March 2018

Confusion in the banking sector, experts differs in prospect of the local banks

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Adnan Adams Mohammed

Despite, the Bank of Ghana saying, it does not expect any more banks to become so distressed to require its intervention for the remaining part of the year, a credit consultant, Emmanuel Akrong has predicted that nine of the over 30 banks in Ghana could collapse if nothing is done immediately to save them.

He explained that, those banks have serious asset quality challenges which have affected their capital strengths and may force them into insolvency along with UT Bank, Capital bank and uniBank.

Mr. Akrong, who has done extensive research on the banking sector, further noted that three banks, one of which was uniBank, have been “on life support” from the Bank of Ghana, although he failed to name the other ailing financial institutions.

However, a Deputy Governor at BoG, Elsie Awadzi in an interview said as far as the regulator is concerned, all banks are in a good standing and should remain so.

“As far as our information goes, all the banks that are open for business are fine. The outlook is fine and we expect that these banks will continue to run and will continue to be strong and be viable,” she said.
Mr. Akrong justified the decision of the Bank of Ghana taking over the management of Unibank, saying, it took the decision to prevent Unibank from collapsing after several months of trying to give Unibank the chance to bounce back, to no avail.

The central bank explained that Unibank had low capital levels and took a number of decisions which the BoG had kicked against.

The Unibank takeover took Ghanaians by surprise as they were still reeling from the collapse of UT and Capital banks which were taken over by the GCB bank only seven months ago.

Despite painting a gloomy picture of the banking sector, Mr. Akrong said the sector is not in crisis, adding that the current challenges were manageable.

“There is no banking crisis at the moment. What we have is asset quality crisis but it is under a manageable scale. What I would say is that some of the issues that UT, Capital and Unibank have are not pervasive. It’s only a few banks in my view – not more than nine banks—have similar problems because their assets have been written down as a result of high asset quality problems and because of that it has eaten into their capital and for those banks, they are on the verge of collapse unless additional capital is pumped in. But to put it in perspective, it is not pervasive. From a liquidity standpoint I would say roughly they are about 3 banks of which one of them was Unibank,” he added.

Throwing more light on his research in the banking sector, the consultant said most of the banks that are struggling to survive have issues with risk management.

“I’ve done extensive analysis on this. I did three analyses; liquidity analysis, asset quality and the other is capital. It doesn’t take magic science for you to know who the nine banks are. You can easily see the banks which have capital problems. It’s clear from my analysis.”

“From asset quality standpoint, 15 banks have asset quality ratio of more than 20% which means one out of every 5 bank loan in Ghana is bad. That is a big problem. People ascribe it to energy sector but energy sector is not a problem. It’s a systemic issue of risk management. When it comes to capital, if I use the GHc120 million as a yardstick, I can count only nine banks which only have a capital problem at the moment. So you could see that it is not really big. On liquidity, it’s about three banks which are on liquidity life support, on asset quality, we have about 15 banks which are really in bad shape in terms of their asset quality and in terms of capital, we have like nine banks which have capital problems,” he added.

On the Unibank insolvency, Mr. Akrong blamed its management and auditors for the bank’s woes.

He insisted that if the auditors had done their work well, they could have predicted the fall of the bank ahead of time.

At a press conference, the Governor of the BoG, Ernest Addison said the decision to take over management of the bank was born by an urgent need to save the bank from collapse.

The BoG said Unibank persistently maintained a capital adequacy ratio below zero, making it technically insolvent.

UniBank, according to the Central Bank, also failed to comply with a directive prohibiting it from granting new loans and incurring new capital expenditures, breaching section 105 of Act 930.

The bank also conducted its credit administration in a manner that has jeopardized the interests of depositors and that of the financial sector as a whole, the BoG said.

This is not the first time a local bank is being forcibly taken over; last year, the GCB Bank took over UT Bank and Capital bank. The takeovers are fueling speculations that many more banks will suffer a similar fate.

But Mrs Awadzi said the Central Bank is putting measures in place to ensure that such incidences do not occur in the future and certainly not this year.

She assured that “We are monitoring every bank everyday…these [remaining] banks are strong. We do not foresee any problems.”

The BoG, she indicated is continuously engaging with stakeholders of the banking sector towards strengthening it.

She said the recent increase in the minimum capital requirement of GHC400 million for banks, effective December 2018, requires banks to inject new capital thereby strengthening their operations.

The BoG, Mrs Awadzi disclosed, is expecting banks “who want to merge to merge, we are expecting acquisitions, we are expecting interesting developments in the banking sector all towards creating stronger and more robust banks.”

The Central bank is also strengthening its internal controls to allow it better play its supervisory role and regulate the sector even better.

“The idea is that we want to support these banks to do good business and to stay strong and viable,” she added.