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Opinions of Monday, 26 March 2018

Columnist: Joshua Asare Date, Yemoh Nii Mensah Benjamin

Bank of Ghana; the Government of Ghana’s Holy Grail

“Bank of Ghana appoints official administrator for uniBank Ghana Limited” I’m sure it came as a surprise to many players in the financial sector. It’s simple, KPMG has been appointed by BoG to take over the helm of affairs at uniBank to try and rehabilitate the bank within a period of six months, and return it to regulatory compliance. After that, it will be handed over to a private management.

What happened?

Section 107 of Act 930 empowers the Bank of Ghana to appoint an Official Administrator to take official control of a bank when its capital adequacy ratio (CAR) has fallen below 50% of the required minimum of 10% (i.e. below 5%) which was the case with uniBank. The capital adequacy ratio (CAR) is a measure of a bank’s capital. It is expressed as a percentage of a bank’s risk weighted credit exposures (credit risk, market risk and operational risk). Most importantly, this measure is used as a basis to protect depositors and promote the stability and efficiency of the financial systems (Investopedia).

In the case of UT and Capital Bank’s collapse, the Governor of BoG, Dr. Ernest Addison, blamed it on lack of good corporate governance exhibited by the two banks. He said, “Corporate governance plays an important role in promoting a sound financial system, contributing significantly to improving overall performance not only in profits but in credibility.”

Without self-discipline exhibited towards the implementation of good corporate governance policies and practice, any corporate organization will be headed for doom.

From the BoG’s communique, it seems weak supervisory standards and lapses in operational procedural are what informed the decision to take over the Administration of the Bank. The question is whether BoG is reacting to the earlier communication of interest in adb by UniBank or its acting in its capacity as the regulator (due process).

1. Does the regulator in this case, referee, being reactive in its duties?

2. Is the banking sector adhering to proper Corporate Governance practice?

3. What are the punitive actions that will be meted out to Management of institutions, with issues such as creative accounting and non-compliance with directives from the central Bank?

4. Subsequently, was uniBank trying to increase its Capital Adequacy Ratio with the BELSTAR move in the form of financial engineering by the so-called claim of pledging of shares. What’s the endgame of BELSTAR; is it to merge the operations of uniBank and adb to hold majority stake? I think the Security and Exchange Commission should sit up and probe the operations and nature of dealings by BELSTAR in the financial Market.

5. Consequently, what’s the role of KPMG in the administration of uniBank for six (6) months? Is it limited to just its day to day management or complete restructuring? What will be the repercussion after the 6 (six) months, will the old management assume their respective positions or not? What should be the expectation of shareholders; will they lose their interest in uniBank after the 6 months? These are questions that need answers in the coming days.

It’s interesting times in the financial sector with quasi banking institution such as Microfinance institutions and Investment other institutions also committing even greater offences than the main stream Banks, with about 30 of them hurled before EOCO already.

Must the regulator sit and act only when there is distress in the sector; the agency theory which management has is the duty to act in the best interest of customers (depositors) since they hold their money in trust for operations, the question bothering minds is whether management are withholding information from stakeholders and using it to their advantage.

uniBank, BELSTAR CAPITAL LIMITED AND GOVERNMENT. OF GHANA LOVE AFFAIR

In a bid by Unibank to bring its CAR back to the required minimum, it invited Belstar, to help it raise GH¢600 million to shore up its capital to meet the new BoG minimum capital requirement. One would ask, why GH¢600 million when they needed GH¢400 million? This could be attributed to the fact that uniBank was highly illiquid and that it needed the extra ¢200 million to pay off its debts and get back to normal operations. As it is now, it looks like that may never happen.

It brings us back to the earlier question; If uniBank agreed for Belstar to raise GH¢600 million for them to shore up their capital, it only meant Unibank were not in the capacity to meet the new capital requirement, thus it needed the help of Belstar. So, how were they going to buy Belstar out of adb? Well, it now looks like uniBank was never going to buy Belstar out of ADB. In simple terms, uniBank was going to convert what it owed Belstar into shares after they had taken over ADB. After all, that is the agreement Belstar had with uniBank earlier on; we will raise the GH¢600 million for you in return for an equity stake in uniBank.

That brings us again to an earlier question; does government, the Bank of Ghana or the Securities and Exchange Commission (SEC) have any leverage at the moment to block this deal? The most interested party among these three is the government of Ghana especially when the finance minister, Mr. Ken Ofori – Atta announced in his 2018 budget statement to Parliament in November 2017, that the government intended to merge adb and NIB, and rename it the National Development Bank. Thus the government must have been unhappy about Belstar and uniBank’s arrangement.

Well, it looked like BoG was government’s Holy Grail in a different way. I bet nobody saw the appointment of KPMG as administrators for uniBank coming. Since the BoG is always aligned to any sitting govt., the government of Ghana was fully armed with this approach to block such a deal from happening. uniBank had a lot of issues that were not privy to the public, but there were some speculations about them being in bad health in the public domain. Going head to head with the BoG and the government by making some public announcements must have been a bad idea after all.

The effect of efficient market hypothesis on the market will affect stakeholder’s decisions in the financial Sector i.e. citizenry losing confidence and trust in the banking sector with the happenings in the last 8 months.

Corporate communication should be the key in how such information is publicized to prevent negative behaviour reactions from key stakeholders. Deepening corporate governance and strict adherence to compliance of banking regulations by key players should be enforced strongly.