Bank Closure: Was The Bank Of Ghana A Prosecutor And A Judge In Its Own Court?

In what would be described a Rambo-styled takeover, the Bank of Ghana revoked the license of five local banks (uniBank, Sovereign Bank, Construction Bank, Beige Bank and Royal Bank) and forcefully “merged” them into a newly created Consolidated Bank of Ghana (BOG) last week.

This move, according to the Bank of Ghana was aimed at building a strong and stable banking sector to drive the process of economic transformation.

The key reasons cited by the BOG against these indigenous banks include inadequate capital, high levels of non-performing loans, weak corporate governance and acquisition of banking license by false pretense.

The closure of five banks in a day has disastrous macro and micro consequence in the country. The hundreds of breadwinners of families who would be out of jobs in an economy which is saddled with high dependency ratio; the several suppliers to these banks who would also lose their source of livelihoods are just a few social costs of the BOG’s action.

Revocation of a bank’s license as a result should be the last resort by the regulator when there is sufficient evidence that banks are broken beyond repair.

However, a careful analysis of the Bank of Ghana’s statement, the available financial statements of some of the five banks, the banking Act 930 and the processes that led to the consolidation action begs a lot of questions on the part of the regulator.

Were all options available to the BOG in saving these banks exhausted?

Were due processes followed according to ACT 930 and the constitution?

Given several instances of abuse of power by regulators in the past, relying on a one-sided story from the BOG is dangerous. Until the lions have their own historians, the history of the hunt will always glorify the hunter.

The curious case of UniBank
UniBank until recently was the largest indigenous private bank in Ghana, winning several banking awards.

In March this year, the UniBank was placed under the official administration of Accounting and auditing firm KPMG by BOG to revive and stabilize the bank.

In line with the requirements of Act 930, KPMG submitted an Inventory of Assets and Liabilities of uniBank (Ghana) Limited on 20th April 2018 (30-day report), and a report on the Financial Conditions and Future Prospects of uniBank (Ghana) Limited on 20th June 2018 (90-day report) to the BOG.

A month after this final report was submitted; shareholders of unibank do not have a copy of the report on which the Bank of Ghana relied on to conclude uniBank was insolvent and had no reasonable prospect of rehabilitation or a reasonably credible path to viability.

This was an interesting conclusion to arrive at. A June 22, 2018 letter written and signed by Simon Dornoo on behalf of KPMG, requested the Finance Minister to pay the GH¢ 868, 973, 599.10 debts incurred by agencies such as Cocobod, the ministry of finance, road fund and Getfund to unibank to prevent it from collapse. “ A timely response will in no doubt help to alleviate the current liquidity challenges facing the bank and minimize the impact the delay in setting these amounts is having on its depositor”, Dornoo said in the letter.

The letter was acknowledged by Charles Adu Boahene, a deputy finance minister on June 22, 2018, with the promise to validate the numbers with the bank of Ghana and revert with full details request.

Did the Bank of Ghana consider the content of this letter in arriving at its conclusion?

What is more interesting in this saga is the preparedness of the Government to capitalize a new bank with GH¢450 million of the tax payers money but was not willing to pay off its debts to an existing bank to save it.

In a letter written by the shareholders of unibank, signed by the Dr. Kwabena Duffor, addressed to KPMG and copied to Dr. Maxwell Opolu Afari, the first deputy governor of the bank of Ghana on July 31, 2018, the shareholders raised serious concerns on aspects KMPG’s June ending financial report. Portions of the report were described as grossly inappropriate and worrying. Key issues raised in the said letter include;

The impairment of the entire loan book of unibank of over GH¢ 4 billion as of June 2018 by the official administrator. This included close to 1 billion of receivables from government and quasi-government agencies of which interim payment certificates were issued.

The Assets provided by shareholders valued at GH¢ 4.4 billion with a forced sale value of about 3.52 billion to be liquidated or leveraged for injecting liquidity were totally ignored in the June 30th financial position of the bank, disregarding the bank of Ghana’s guide for financial publication for Banks which allow forced sale value of assets to be treated as “assets held for sale”. These assets presented to the OA on 10th of April were ignored without recourse to the shareholders on the basis that the OA did not have sufficient time to validate its inclusion to support the balance sheet.

An initial amount of GH¢ 4.9 billion that later jumped to GH¢ 5.7 billion alleged to have been drawn by the shareholders' group was contested. Proper vetting and validation of the figures were not concluded but the said amount was included in the report presented to the BOG.

Why were the above concerns of the shareholders not addressed before the sudden revocation action was made?

Rehabilitation of a bank under an official administration

In the bank of Ghana’s press statement of August 1, 2018, the conclusion to revoke unibank’s license was arrived at after careful consideration of options provided under Act 930 to rehabilitate a bank under official administration.

Below is what section 115 which spells out what should be done to a bank under administration by the BOG’s Act 930.

Capital increase by existing shareholders
115. (1) On the basis of the report produced under section 114 and with the approval of the Bank of Ghana, the official administrator may for the purpose of increasing the capital of the bank or specialized deposit-taking institution through the issuance of new shares to existing

1. (a) determine the extent of losses and prepare the financial statements of the bank or specialized deposit-taking institution covering the amount of the losses, profits, reserves and

2. (b) notify existing shareholders of the amount of additional capital needed to bring the capital of the bank or specialised deposit-taking institution into compliance with all capital requirements and allow such shareholders to subscribe and purchase additional shares, by submitting binding commitments equal to the full amount of additional capital needed within five working days of such notification.

(2) Where an existing shareholder of a bank or specialized deposit-taking institution is unable to subscribe and purchase additional shares as provided under subsection (1), the official administrator shall have the right to invite another person or persons to subscribe and purchase the unsubscribed additional shares.

Based on what the section 115 stipulates, were the shareholders' plan of recapitalization of the bank considered by the BOG?

Was sufficient opportunity given to shareholders to salvage the bank as stated in the BOG’s own ACT?

Why was the US$ 400 million confirmed by a first-class international bank to be released in two tranches indicated in the shareholders' letter to the OA to improve the liquidity and solvency of unibank ignored by BOG in arriving at their final conclusion on the bank?

Did the official administrator invite another person or persons to subscribe and purchase the unsubscribed additional shares?

The haste of the BOG to revoke unibank’s license without following its own ACT reveals a disposition towards an agenda to crush the “wobbly legs” of a bank saddled with corporate governance issues that needed fixing.

Is it fair to throw the baby out with the bathwater?

The shareholders of these banks have been unfairly treated and demonized without a least opportunity to salvage their investment.

This regulatory approach has negative implications in attracting investment and encouraging entrepreneurship in the country.

We cannot build the strong resilient economy conducive for both internal and external investment when regulators who are supposed to be fair, firm, politically independent, act as prosecutors and judges in their own court.

The best way forward is for parliament to step in with an independent committee with support from experts to review the KPMG report that formed the basis of BOG’s decision.

Mark Kofi Poku
[email protected]