Business News of Thursday, 31 May 2012

Source: Daily Graphic

Banks Plead For Bailouts

Some of the banks are requesting for a bail out from their owners while others are seeking for a private placement all in a bid to meet the Bank of Ghana’s (BoG) minimum stated capital.

The national pension fund manager, the Social Security and National Insurance Trust (SSNIT), which holds a majority stake in most of the local banks, has been inundated with request for a bail out.

Corporate Affairs Manager of SSNIT, Ms Eva Amegashie confirmed to the Graphic Business in an interview that the SSNIT has had several requests from some banks to be re-captalised.

“We have already received some proposals from some of the banks that we have interest in to be re-captalised, but as you know, it’s not everywhere that we can put our money in”, she said.

You know, the money is not for us, we hold it in trust for the pensioners and so that is why we cannot just be putting money everywhere”, “we have to be selective and diligent”, she added.

But the selective bail out has not done much good to the fairness of the pension fund manager. Industry players have questioned the motive for bailing out some banks to the neglect of the others.

The support to CAL Bank comes just months after SSNIT had announced that it is taking steps to reduce its dominance in the banking sector.

In the past, the fund has often been criticised for venturing into failed investments and for running a bloated and expensive bureaucracy. Though it has recorded some gains in several ventures, it has been able to meet its obligations to pensioners.

But the request for a bail out comes at a time the pension fund manager is facing a delicate task of creating the right balance of investments that guarantees returns so that it can continue to achieve its mandate as trustee of pensions.

In the government's new pension law, the management of pensions will be shared between SSNIT and private fund managers, while workers could take advantage of a third tier under the new scheme to build up their own savings.

The new pension law requires that out of a total contribution of 18.5 per cent of the basic salary that is supposed to be paid by employers on behalf of their employees to SSNIT, five per cent is expected to be transferred by SSNIT to approved trustees for management on the behalf of scheme members.

The approved trustees, who will compete for the funds, are subsequently required to manage the contributions and pay lump sum benefits to workers upon attainment of the retirement age, in addition to the monthly pensions to be paid by SSNIT to the pensioner.

The third-tier schemes will mainly make provision for privately managed provident funds and personal pension schemes that enables self-employed artisans, traders, farmers and others operating in the informal economy to also prepare for a dignified retirement.

Already, CAL Bank had announced that it has more than trippled its stated capital from the initial GH¢27.7million to GH¢100 million with an injection of GH¢75million into the bank through a private placement initiated by the bank in September last year.

With its current GH¢100million stated capital, CAL Bank is now GH¢40million above the regulator’s minimum requirement of GH¢60million for local banks by December 2012.

The Chief executive Officer of the bank, Mr Frank Adu Jnr, said the conclusion of the private placement “spells the beginning of an exciting new era for the bank.”

By this arrangement, CAL Bank has joined the elite group in Ghana’s domestic banking sector, which also has UT Bank, Ghana Commercial bank and Agricultural Development Bank (ADB).

HFC Bank may just also beat the Bank of Ghana December deadline for recaptalisation because it is in a discussion with finance agencies like Proparco and Aureos for some injection of cash just to avoid a possible merger or forceful takeover if it failed to meet the BoG expiry date.

The National Investment Bank (NIB) has set in motion plans for a private placement that will provide the needed capital muscle to enable the bank participate in the lucrative business of the oil and gas industry.

The bank has also set in motion a process that will lead to the preparation of an investor memorandum aimed at raising new capital to the tune of US$125 million. The bank is likely to be bailed out by its closest neighbour on the Accra central, COCOBARD.

Like the Agricultural Development Bank, other local banks may also fall on their income surplus accounts from where funds could be transferred to meet the new capital requirement.

However, this option would be easy for only local banks whose shareholders have not, over the years, pushed for dividend payout ratios that are detrimental to the growth aspirations of their banks.

Another way of raising money to increase a bank’s stated capital is to seek listing on the Ghana Stock Exchange. But with bank stocks being very popular among investors on the Ghana Stock Exchange, there are worries that the slump on the stock market over the past couple of years would discourage investors from buying into any initial public offers or rights issues.

For now, Unibank, Prudential Bank and even Merchant Bank and NIB may up for grabs in case they are not bailed out by SSNIT.

Meanwhile, SSNIT has said that swapping its stake in The Trust Bank (TTB) was for more shares in ECOBANK-Ghana in order to get good returns on its investments, especially in the wake of pension reforms.

SSNIT last year swapped about 11million shares in TTB for 38.6 million shares in ECOBANK-Ghana for GH¢ 220 million

The move was however heavily criticized by some interest groups as well as some workers of TTB.

But speaking to JOYBUSINESS, Director General of SSNIT, Dr Frank Odoom stated that recent developments have shown the deal was a prudent one.

The important thing the company is focusing on, he said, is the sustainability of the company’s pension schemes.

“We want the scheme to be there for generations to come and the only way we can do that is to make sure that we good investments,” hence the merger with ECOBANK.

The Trust received some GH¢ 11.2 million as dividend from ECONBANK, which according to SSNIT, is the biggest dividend it has ever received from all its investments in the country.