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26.10.2007 Business & Finance

Banks Welcome BoG’s Move

By Daily Guide
Banks Welcome BoG’s Move

•To Raise Capital Requirement To ¢500bn

Some players in the banking industry have begun welcoming the move by the Bank of Ghana (BoG) to increase the minimum capital requirement of banks from the current ¢70 billion (GH¢7.0 million) to between ¢500-600 billion (GH¢50-60 million).

The mechanism, set to take place by the middle of next year, requires banks and deposit taking Non-Bank Financial Institutions (NBFIs) to submit capitalization plans by the end of June 2008.

Since the beginning of this year, the players have been urging the Central Bank to increase the minimum capital requirement of the financial intermediaries in order to help them undertake bigger transactions.

Frank Adu Junior, Asare Akuffo and Alhassan Andani, Managing Directors of Cal Bank, HFC Bank and Stanbic Bank respectively were some of the heads of the financial intermediaries calling for the upward adjustment.

Though the proposed increment will not take place before the end of the year, the players believe such a move would strengthen the risk-based management of the banks as well as encourage competition in the banking industry which is measured in terms of earnings, portfolio liquidity and capital adequacy.

The proposal by BoG indicates further that deposits of NBFIs and finance houses would also increase from ¢1 billion (GH¢1.0 million) to between ¢5-8 billion (GH¢5-8 million).

The phenomenon could cause smaller banks to either go out of business or merge with the bigger banks to survive in the industry.
Mergers and acquisitions will indeed heighten among the 24 banks as well as the many financial institutions.

Speaking in a telephone interview with CITY & BUSINESS GUIDE yesterday, Managing Director of Trust Bank Ghana Limited, Isaac Owusu-Hemeng commended the BoG for taking a cue from developments in the global economy, adding that the proposal will enhance operational efficiencies of the banks and as well encourage the implementation of new Information and Communication Technology (ICT) driven projects such as more deployment of Automated Teller Machines (ATMs) and internet banking developments.

Mr. Owusu-Hemeng, who is also the President of the Chartered Institute of Banking, said the initiative is good for the banks to recapitalize in order to cope with customer demands.

“In order to ensure that banks do not follow systematic risks, we need to strengthen our capital base. The universal bank license granted to the banks by the Central Bank now enables us to undertake development and merchant banking,” he explained.

On the issue of consolidation, Mr. Owusu-Hemeng welcomed the idea, and urged the smaller banks to consider the stock exchange to raise additional capital so as to become more robust.

On his part, Mr. Andy Ojir, Managing Director of Zenith Bank, the second largest bank in Nigerian, also commended the initiative by the Central Bank, saying the players have been yearning for it for long.

Mr. Ojir told CITY & BUSINESS GUIDE that smaller capital base limits the banks and that this is an opportunity for banks to merge.

“In Nigeria, about 10 banks consolidated to meet the minimum capital requirement so let us also embrace it.” Zenith Bank is one of the four Nigerian banks that opened subsidiary in Ghana in 2005.

The Nigerian experience is still fresh in the minds of Ghanaians.
The Central Bank of Nigeria increased the minimum requirements of the banks from 2 billion Naira (US$14.5 million) to 25 billion Naira (about US$ 181million), reflecting an increment of 1150 per cent.

According to a statement from the BoG, submission of capitalization plans would guarantee continued access to the settlement and primary dealership systems.

After December 2008, participation in the settlement system will be restricted to institutions that have met the capital requirements.

To ensure an orderly consolidation, the regulator said the banking system would allow for lower tier banks after December 2008 so that banks that do not meet the capital requirements will belong to the lower tier.

Banks and NBFIs granted licenses or provisional licenses within the last six months to date will be required to meet the new capital requirements within two years from the date of operations.

By Charles Nixon Yeboah & Felix Klutse

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