August 1, 2018, marked a black Wednesday for Ghana, particularly for workers, managers, Boards of Directors and shareholders of some five banks as the Governor of the Bank of Ghana (BoG), Dr. Ernest Addison revoked the licences of uniBank Ghana Limited, The Royal Bank Limited, The BEIGE Bank Limited, Sovereign Bank Limited, and Construction Bank Limited and granted a universal banking licence to Consolidated Bank Ghana Limited (CBG), with Mr. Nii Amanor Dodoo of KPMG appointed as the Receiver for these five banks. This move follows a similar action taken by BoG just about a year ago in August 2017, where two banks (UT and Capital Bank) were put under a purchase and assumption agreement with GCB Bank. These actions provide an insight into the recent developments in the banking sector and the economy at large.
The overarching goal of these actions, according to the governor, is to strengthen the financial system in order to protect the interests of depositors. The governor listed “legacy problems including macroeconomic factors, poor corporate governance and risk management practices, related party transactions that were not above board, regulatory non-compliance, and poor supervision, (questionable licensing processes and weak enforcement) leading to a significant build-up of vulnerabilities in the sector” as the underlying factors for the revocations.
Industry experts, watchers and unions have commended the governor for this move and welcomed the consolidation of these banks while others are calling for the subsequent prosecution of those found culpable for the collapse. Despite the applause and commendations, there are a few nagging questions and concerns that need to be addressed. What happened to these 5 banks? Did all the five banks have the same situation? Who at the central bank granted these licences? What will be the implication of the move on jobs? And finally what is the broader agenda behind this consolidation?
The Case of uniBank and Royal Bank
As part of its measures to ensure constant monitoring, banks are supposed to file operational reports to BoG on a regular basis. Now the question is, what happened to those reports and how did it turn out that the regulator was unable to identify red flags from these reports? How did shareholders, related and connected parties of uniBank draw a total of GHS 5.3 billion under the watch of the central bank without notice? Prior to being put under, the regulator indicated that liquidity support offered to uniBank had been used by the bank officials as loans for Belstar, which had subsequently used same funds for the purchase of shares in ADB. The ability of the bank officials to embark on such regulatory infractions without notice means officers at the BoG cannot be exonerated as well.
The Royal Bank on the hand was burdened with NPLs and transactions entered into with shareholders, related and connected parties which circumvented single obligor limits, conceal related party exposures, overstate capital position which sought to comply with the capital adequacy ratio. How were these done on the blind side of the regulator?
Hopeless as the case of uniBank and Royal bank may sound, I don’t subscribe to the notion that all these bad and unlawful banking practices were done on the blind side of officials of the regulator. If this indeed was done without the knowledge of BoG then the appointed officials of the central bank in charge of monitoring such unlawful and bad banking practices slept on the job and must not be left off the hook either.
The Case of Sovereign, Construction and The BEIGE Bank
The case of these three other banks would definitely embarrass any regulator, pointing to the fact that no proper due diligence was done on their applications when they were being licensed. Hence the allegation that these institutions obtained their licence by “false pretences through the use of suspicious and non-existing capital” sounds a bit stretched.
I am not holding brief for these three banks but the ubiquitous and newly found love of the Central Bank which goes by the name, Banks and Specialised Deposit-Taking Institutions Act 2016 (Act 930), prescribes what the regulator should have done prior to granting any such institution a licence to operate.
These prescribed actions include but not limited to, interviewing promoters or key managers, inspection of the relevant documents and the verification, certification and authentication of submitted information in a manner that the regulator may prescribe. We know the current Governor gave the final approval of the licences for these three institutions and even attended the launch of same. So how exactly were false pretences used to procure a licence from BoG? Obviously, there were lack of proper and thorough investigations, omissions and commissions, and delays in the taking of appropriate actions on the part of the regulator and its officers.
The glaring incompetence of the central bank in relation to the three in the award of their licenses is so alarming and thus leaves more questions at the doorstep of the regulator to answer.
Construction Bank’s earlier decision to round up their operations was proof to the fact that their challenge was one of meeting the minimum capital and could have been supported if authorities were willing to, as has been indicated by the government: that solvent banks with good operations are going to be supported to meet the GHS 400million.
Granted that Sovereign Bank had been given liquidity support of up to GHS21 million until their final consolidation, what then happened to The BEIGE Bank? Couldn’t The BEIGE Bank have been supported with the same liquidity intervention as was the case of uniBank and Sovereign Bank? Especially when the liquidity challenges of the bank emanated from a situation of bank rush which was caused by the regulator’s penchant of putting bad news in the system and recent happenings within the banking sector. Hence in the case of The BEIGE Bank, I don’t know which petrifies me more: the claims of the Central Bank that officials of the bank used false pretence to obtain the license, or the regulator watched on for the bank to go under when it could have rescued it via liquidity intervention?
In all of this, I personally think BoG is using a sledgehammer to kill a fly. Why? Because despite the fact that some of these banks particularly The BEIGE Bank may have been found to probably be engaging in unlawful and bad banking practices, I feel the action of the regulator was too harsh. Couldn’t the assets of The BEIGE Bank be revalued and probably downgraded back into a savings and loans company or even a microfinance, which is where the institution even started from before it graduated into a universal bank after 10 years of hard work?
The Broader Agenda Behind the Consolidations
As it stands now, the remaining indigenous banks have a little over four months to find the non-negotiable GHS 400million, merge or be merged (or better still get consolidated). Judging by the astronomical increase in the minimum capital requirement and the limited timeframe, it was only a matter of time for most of these banks to go down. Especially for those who acquired their licences not too long ago. Furthermore, it is quite unreasonable to think that banks (both existing and newly licensed ones) would be able to raise the requisite capital within the troubled financial market currently brewing in Ghana.
With hindsight on this forgoing challenges and/or concerns, the Central Bank then calls for mergers. This is where lies my concerns. The Central Bank and some industry experts are making so much noise about local banks merging, but what they fail to realize is that merging is not the panacea for all the capital challenges in the industry. Furthermore, merger negotiations can take a long time to conclude and this can even breakdown at any point in time due to organizational culture and other differences. Besides, parties in merger negotiations would have to consider a whole lot of issues like staff capacity; which branches to keep and which ones to close down for those located at the same place; who owns what; severance packages etc. It is therefore ludicrous for BoG to think that mergers of these banks can be done and dusted by the December 2018 deadline.
I feel there is an underlying reason behind this haste and we the people of Ghana are not really being told. I can only view the consolidation as part of the governments broader agenda of having a big bank to embark on its so-called big-ticket projects and the only way to achieve this is to squeeze the local boys out of the game and appropriate what they have toiled for, since building one from scratch will be an arduous task.
Implications of the Consolidation
Despite the assurances of the regulator that depositors’ funds are safe and there will be no job losses, I beg to differ on the second point. People will definitely be laid off as was the case of the two other banks in 2017. The broader implication of this move is that young entrepreneurs are watching and this move will definitely affect their willingness to be innovative and take risks.
In all of these, we must be careful in not judging officials of the defunct banks in a court of public opinion by labelling their actions as fraudulent – which can only be determined by a court of competent jurisdiction where they would also be granted the opportunity to be heard. As it stands now, all we know is what Dr. Ernest Addison and his lieutenants at BoG are telling us, and this by no means should be taken as the final decision in this case.