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22.03.2007 Business & Finance

Raise Bar On Capital Requirements Of Banks

The Group Chief Executive Officer (CEO) of the Ecobank Transnational Incorporated (ETI), a banking group with strong presence in West and Central Africa, Mr Arnold Ekpe, has said there is the need to review the minimum capital requirements of banks in the country upwards to about $50 million.

He said that would give greater financial footing to the banks and to enable them to undertake bigger projects and support the country's economic development.

Speaking shortly after the board meeting of ETI in Bamako, Mali, the group CEO said “banks need to be adequately capitalised.”

The Banking Act of 2004 made it mandatory for banks to raise their minimum capital requirement to ¢70 billion, but Mr Ekpe said that was still on the lower side.

He said Ghanaian banks, for instance, could not solely finance cocoa syndication loans, due to the small capital base of the banks in the country and that it was also one of the reasons why interest rates were also on the higher side, explaining further that most small banks had most of their funds as short-term funds.

He said on the other hand, bigger banks had most of their funds in current accounts, the source of cheap funds and could easily on-lend such funds at competitive rates.

The group CEO cited Nigeria as an example of where local banks could finance up to about $750 million syndicated loans without resorting to any foreign banks and attributed this to the the huge capital base of most of the banks.

Mr Ekpe said if the minimum capital requirements of local banks were raised further it could also bring about consolidation of some local banks in the country to make them stronger and robust to meet the increasingly challenging banking industry of the country.

On regulations of the financing services industry in the country, Mr Ekpe said the central bank had shown tremendous ability in transforming the banking industry and said “I am even more hopeful that the Bank of Ghana has put in the right structures to effectively regulate the banking industry in the country”.

On plans by the ETI to roll out its retail end of the banking sector in Ghana, the Group CEO said the bank had put in structures to establish its presence in many locations in the country and introduced new products by leveraging on its information technology platform.

He said the Ghanaian banking sector had become very competitive, adding that “we at Ecobank welcome the competition”.

He said what distinguished Ecobank from the new entrants to the Ghanaian market was the fact that Ecobank was a Ghanaian bank, with regional reach and the financial muscle to undertake more businesses in the country and beyond.

Mr Ekpe said the bank would continue to introduce new products such as the Ecobank Credit Card that would ensure that customers within the West African sub-region could access their funds.

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