The recent increase in the minimum capital requirement for universal banks from GH¢120million to GH¢400million must be strictly time-bound and not allowed to dawdle if the objectives of the recapitalization move by the Central Bank is to be achieved, Bernard Osei-Tutu, Chief Executive Officer of Dusk Capital has said.

“The deadline should not be long. Over the years, when the minimum capital is raised, it tends to affect new entrants immediately and we give so much time for existing banks to meet it.

This should not be the case this time around; everyone must recapitalise by the given deadline [of December 31, 2018],” Mr. Osei-Tutu told the B&FT

The new minimum requirement is seen by industry watchers as a subtle attempt by the central bank to engineer mergers and acquisition in a sector that is not sound enough to support the country’s developmental growth.

Any bank that is unable to increase its capital up to GH¢400 million by December 31, 2018, will be considered as an undercapitalized Bank.

However, the about 495 days [about 1year, four months] allowed for an undercapitalized banks to remedy the situation after the deadline of December 31, 2017 to ensure it does no lose its license is what has raised concern over.

Credit consultant, Emmanuel Akrong, explained in a recent article in the B&FT that

an undercapitalized bank, as a first remedy will be required by the central bank to submit a capital restoration plan within 45 days after BoG requesting.

The central bank will then have 180 days after receiving the said plan to conclude the capital and liquidity restoration process just as stated by the Banks and Specialised Deposit–Taking Institutions Act, 2016 (Act 930).

Subsequently, the BoG will further impose restriction on growth of assets or liabilities, in other words the Bank may not be able to lend or accept deposit from the public. If the problem persists after the first attempt, BoG, he said, will provide a 90-day window for a new plan and a further 180 days to correct the anomaly.

Banks that fail the first two attempts are required by Act 930, the law that regulates the banking industry, to be put into official administration.

“Lastly, section 123 of Act 930 provides BoG the right to revoke the license of the Bank when BoG believe the Bank will be insolvent within 60 days,” he wrote.

Dr. Ernest Addison, Governor of the Central Bank has served notice that his outfit will not hesitate to treat distressed banks just as UT and Capital banks were.

UT Bank and Capital Bank were deeply insolvent, and therefore were not able to meet their obligations as and when they fell due. The banks were unable to increase their capital to address the insolvency, forcing the hand of the regulator to revoke the licenses of UT Bank and Capital Bank under a Purchase and Assumption transaction. GCB has since taken over the two indigenous institutions.

Ken Ofori-Atta, Finance Minister, has also advocated for the trimming down of the large number of universal banks operating in the country to about five strong banks capable of handling big-ticket transactions.

The sector comprises about 34 banks, 16 of which were under domestic control and the remaining 17 foreign-controlled.

With a Gross Domestic Product (GDP) of about US$35billion, Ghana has about 34 universal banks serving 28million inhabitants. South Africa, a nation of 55million inhabitants with a GDP of close to US$400billion, has about 20 universal banks. West Africa’s largest economy, Nigeria, with a population of about 200million and a GDP in excess of US$500billion, has less than 25 universal banks.

The minimum paid-up capital of the banking industry grew by 29.5 percent to GH¢4.14 billion in April 2017 from GH¢3.20 billion in April 2016, The Banks of Ghana’s Banking Sector Report, May 2017 shows.

The recapitalization of the banking sector will increase the minimum paid up capital to about GH¢13.6billion.

“The new minimum capital requirement will prompt indigenous banks to merge and become bigger banks with the capacity to undertake big-ticket transactions. We will also see specialised banks, some focusing on SMEs, and telebanking among others,” Mr. Osei-Tutu, whose company has about GH¢60million funds under management said.

Investment firms vrs banks

“The banks are supposed to do retail banking, they have no business in the capital market space. The capital market space belongs to investment banks who are duly licensed by the Securities and Exchange Commission (SEC), while the banks that are supposed to do commercial and retail banking are under the control of BoG.

Unfortunately, we have all been boxed together and people can’t even differentiate between a commercial bank and an investment bank,” Mr. Osei-Tutu said.

He argued that the strict adherence to the deadline for recapitalization will force banks to focus on their core mandate so that investment firms will have enough room, currently constrained by banks, to operate.