We are in the wake of the merger of the 5 banks by the Bank of Ghana into the Consolidated Bank Ghana Limited. The five banks that were merged included; BEIGE, Sovereign, Construction, Unibank and Royal Bank. This follows a common trend of the rising cases of insolvent banks in Ghana. Upon investigation done by the Bank of Ghana, the five financial institutions were declared insolvent. This really spells doom on the banking sector in Ghana which has been plagued for some time.
The announcement of the insolvency was done by the BOG GovernorDr Ernest Addison. The merger is expected to help the economic development through the Consolidated Bank. This follows the issuance of a bond that totaled GHc5.6 million in order to take care of the bad assets of the banks. The Governor revealed that Unibank and Royal Bank had been under capitalized and their survival was beyond rehabilitation.
When it comes to Royal Bank, the downfall has been attributed to the non-performing loans that had accrued up. For the Sovereign bank, license issuance was under review due to its suspicious act. The Consolidated Bank would know be headed by Mr. Nii Amanor Dodoo of the KPMG who will act as the Receiver of the five banks.
According to the press release, BOG granted license to the Consolidated Bank. It also revoked the licenses of the five financial institutions. However, the deposits of the five financial institutions are safe and have been transferred to the Consolidated Bank. As for the customers of the affiliate banks, they can access the services of the banks as usual with the banks acting as branches of the Consolidated Bank.
Banking industry in Ghana analysis
The move by the BOG has been seen to strengthen and stabilize the banking sector in order to drive economic transformation. The trend of the most banks not satisfying the minimum capital requirement for banks in Ghana has weakened the banking sector. And this has resulted in the limitations in accessing credit with the lending rates continuing to be high.
It is under the jurisdiction of the BOG to promote the safety, soundness and stability of the financial system in order to protect the interests of the depositors. BOG has rolled out couple of measures in this financial year that have been geared towards the strengthening of the interests of the depositors. However, some of the problems that have been consistent in the sector are; macroeconomic factors, regulatory non-compliance, poor corporate governance and risk management practices, and poor supervision that has led to the weakening of the sector.
However, the collapse of Unibank due to failure to meet the capital adequacy ratio has evoked different emotions from stakeholders. The leading member of the opposition party National Democratic Congress (NDC) laid the blame on the ruling New Patriotic Party for the current state of the banking industry.
Hon. Isaac Adongo, MP Bolgatanga Central, accused the government of refusing to pay the debts owned by the financial institutions. He argued that it was the duty of the government to chip in to avoid the local banks from going through the financial distress.
The Bank of Ghana conducted the Asset Quality Review in 2015 and updated it in 2016. The results showed that a number of the local indigenous banks were categorized as vulnerable due to the inadequate capital adequacy ratio, high levels of non-performing loans and the weak corporate governance.
This is what led to the collapse of UT Bank and Capital Bank in August, 2017. The UT Bank collapse led to the approval in the acquisition by the GCB Bank of some of their owned assets and liabilities. This is as prescribed in the Purchase and Assumption Agreement.
There were a host of local banks that opened their doors for business in 2017 after being licensed the previous year. It was not long before they started to show symptoms of financial distress owing to the challenges facing monetary policy in Ghana.
This followed by attempts of the indigenous banks to resuscitate themselves to life from the financial distress but all their attempts were in vain. The move even worsened matters for the financial institutions. It was from the AQR that was updated in 2016 as to why UT Bank failed. The exercise also highlighted the woes that were facing Unibank and Royal Bank.
Unibank and Royal Bank had earlier attempted to escape the radar of BOG. They handed out their business resumption plans. Unfortunately, their last strides were those of a dyeing horse as BOG did not return their solvency and compliance with the monetary policy tools in Ghana.
The situation on the ground was however unredeemable. Both the shareholders and the connected parties had parted away with a sum of GHc3.7 billion. The details behind the handout were also unclear and unaccounted for. The sum could not be traced from either the normal credit delivery processes or as a subsidiary of the loan portfolio of the financial institution.
Based on the current monetary policy issues in Ghana, they had failed under the mandate when they offered total of GHc1.6 billion to the shareholders, related and other connected parties. The total sum was in form of loans and advances that were handed out without following the due procedural steps. This was also in breach of the relevant provisions as subscribed under Act 930.
The final report showed that all these loans and advances taken from the bank amounted to GHc5.3 billion. The total amount was shared by the shareholders, related and the connected parties of Unibank. This totaled up to ¾ of the total assets of the financial institution.
For the case of Royal Bank, there existed irregularities from the on-site examination that was conducted by the Bank of Ghana as of 31st March, 2018. It was discovered that the financial institution had non-performing loans which added up to 78.9% of the total loans that had been granted. This was attributed to the poor credit risk and the liquidity risk management controls.
There was also a string of issues with the sum of GHc161.92 million entered to the shareholders, related and the connected parties. This revealed circumvent single obligor limits, conceal related party exposure limits and the overstate capital position of the bank. These were reviewed for checking on the compliance with the requirements of the capital adequacy ratio.
In order for improvements in the investment banking industry in Ghana, BOG approved the Purchase and Assumption Agreement between the Consolidated Bank and the Receiver of the five banks. BOG instructed for the recapitalization of the shareholders to the minimum capital requirement during the time of licensing. Even though the plans have been submitted, they are yet to yield any success.
It remains to be seen whether these recent developments in Ghana’s banking industry will yield any fruits.