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Business News of Saturday, 27 August 2011

Source: citifmonline

GCB management reacts to agitated workers

In reaction to the many agitations by workers of Ghana commercial bank the management of the bank has sought to clear the air on the current rumpus that has engulfed the bank.

Workers of the bank for some time now have been up in arms against management of the bank over moves to dismiss about 1000 workers, the out sourcing of the salaries department to audit firm KPMG and the sale of assets of the bank.

They had also petitioned the Finance Minister to dissolve the board and management of the bank.

But management of the bank who had been silent since these wrangling begun have released a press statement responded to some of the issues. Below is a copy of the full release.

PRESS RELEASE BY MANAGEMENT OF GCB IN RESPONSE TO RECENT PUBLICATIONS ABOUT THE BANK IN THE MEDIA

Recently there have been a number of media reports about the Board and Management of Ghana Commercial Bank Limited (GCB).

These allegations are potentially damaging to the Bank’s reputation among its customers, competitors, investors and other stakeholders as well as to the persons named in these reports.

Some of the reports in the media have labeled the Board and Management as grossly incompetent and corrupt. We have received many enquiries from foreign shareholders who in total have invested over GHC100 million in the Bank about these publications.

Management therefore deems it important to respond to these allegations in order to clear the air and protect the reputation of GCB, the Board and Management.

It is important to note that the Bank is currently enjoying a high level of confidence from the investor community reflecting in a 300% rise in its market value from GHC 196 million to GHC787 million in almost two (2) years. The significant rise in the Bank’s valuation has been driven by the Bank’s recent sterling performance.

Indeed, its stock is now the most actively traded stock on the Ghana Stock Exchange and a clear example of an indigenous Bank that is seeking to rise up and be counted among the best banks. The Bank won the Best Performing Africa Investor (Ai) 100 Company award in 2010.

The current Board of the Bank took office in March 2009 and immediately devoted the period 2009 to 2010 to stabilizing the Bank.

It is instructive that when the Board assumed office, the Bank was then carrying a disproportionate level of non-performing loans, inadequate liquidity (which resulted in the Bank of Ghana providing daily liquidity support for more than a year) and erosion of the Bank’s capital base.

The Bank’s credit lines with correspondent Banks abroad have all been cancelled. These developments, including the overconcentration of the Bank’s credit exposures provided the basis for Moody’s to further downgrade the Banks Financial Strength from D to E.

Management subsequently commissioned a financial review and the outcome highlighted further issues that needed urgent attention that were immediately acted upon.

The Bank’s 2010 results show a remarkable turnaround and these challenges could not have been achieved without the full participation and regular intervention of the Board.

Indeed, in the 2010 Annual Report to shareholders, the Board and Management indicated its intention to embark on reforms that would progressively move the Bank to a customer-service oriented andperformance-based culture.

Having invested heavily in technology, it is now time to realize the benefits of this investment by streamlining the operational processes. THE ALLEGATIONS

1. NON-EXISTENCE OF A CORPORATE PLAN The Bank’s Corporate Plan was set aside by the Board in 2009 because in its assessment, the plan did not address the challenges facing the Bank at the time, as enumerated earlier.

The Board therefore approved a short-term plan that focused on turning around the Bank’s position which was precarious at the time. The Board recruited a new Managing Director a year after taking office to succeed the outgoing Managing Director, whose last day of work was the 3rd of March, 2010.

The Board has approved a new structure for the Bank and is in the process of reviewing the leadership team who will work with the MD and the Board to fashion and deliver on the new medium to long term plan for the Bank.

2. BOARD MEETINGS It has been said that a total of 73 Board meetings were held in 2010. The Bank’s records show that a total of 25 Ordinary and Special Board meetings were held in 2010. The Board has 3 sub-committees as part of its governance structure.

These are the Human Resources (HR) sub-committee that met 12 times (mainly to consider petitions from staff and disciplinary matters); the Audit and Compliance committee met 10 times (to consider inspection reports from 157 branches and divisions and other governance issues, Bank of Ghana examination and Auditors’ reports). The Executive Committee met 10 times (mainly for credit issues and other urgent matters).

During the year, 12 ad-hoc meetings were held to deal with major contract awards, Corporate Governance issues and Board effectiveness training.

This data is verifiable from the Board Secretariat. 2009 and 2010 were not normal years for the Bank and for banks globally.

The Board had to increase the frequency of its meetings to ensure successful execution of its turnaround plan.

It is instructive to note that the number of Board meetings of European and US Banks increased significantly in 2008 and 2009 because the Boards had to take charge of ensuring their Banks’ survival through the financial crises which started in late 2008.

3. INTENDED RESTRUCTURING – GCB TO LAY OFF 1,000 STAFF Management has not presented any memorandum on staff rationalization to the Board for consideration.

Management has however commissioned a diagnostic study of the Bank’s Human Resource base with the view to developing a road map to improve the human resource framework of the Bank.

The scope of this work covers determining optimal headcount by benchmarking against industry best practice, developing job descriptions and job grades, reviewing salary structures and developing a performance management system.

This process is consultative and the stakeholder engagement process is ongoing. If the outcomes of this exercise require the Bank to carry out a redundancy program, such a program will be undertaken in accordance with all existing laws and in the interest of all stakeholders.

If the outcome of the diagnostic study also requires hiring new people, we will do so in the interest of the Bank. It is important to note that in 2010 the bank recruited 285 new university graduates.

Management has always made it a point not to divulge matters discussed at the Standing Joint Negotiation Committee. However, given that this issue of redundancy came up during the negotiation process, Management feels compelled to shed some light on this matter.

Management indicated at one of the sittings that its current cost levels could not be sustained in a rapidly declining interest rate environment and that a condition for increasing its offer from 10% to 15% was for a redundancy (involving 900 staff) to be carried out over a period of three years.

The Unions raised an objection pointing out that negotiations and redundancy were subject to different rules. The Bank’s underlying Cost to Income ratio of 69%is the highest among its peers. The average Cost to Income ratio for the Bank’s peer group is 50% which makes the Bank’s current ratio clearly unsustainable.

Negotiations were finally concluded at 20% increase in salaries across board, with an additional 5% of basic salaries paid as one-off. Other allowances were also adjusted upward.

It is pertinent to note that GCB carried out a redundancy exercise in 2008 and 2009. This would therefore not be the first time if it happened.

Other Banks in the industry have embarked on similar exercises in response to general developments in the industry. In the event of a rationalization, Management will ensure it fulfills its duty of care to staff in all dealings.

4. OUTSOURCING Outsourcing is not new to the Bank. Indeed many companies as well as other banks in Ghana outsource a number of their activities.

The Bank outsourced its cash collection and distribution operation as well as various personnel services (security and drivers) to third parties some years ago.

Management will continue to review all other operations including non-core activities that the Bank currently performs for additional outsourcing opportunities to either minimize investment in capital expenditure, improve efficiency through economies of scale, gain access to specialized skills or redirect staff to focus on core activities of the Bank.

This and other change initiatives are imperative so as to ensure a sustainable business especially as we move into a lower interest rate environment.

5. SALE OF BANK PROPERTIES The Bank owns a large number of its 157 branch premises and many residential properties; these need refurbishment to meet health and safety standards.

To put all these properties in acceptable condition will require huge capital outlay. A committee chaired by the Deputy Managing Director, Finance is currently assessing our requirements and would make appropriate recommendations to Management for consideration when they complete their assignment.

We would like to state categorically that no discussion on the sale of Bank’s properties has been held by the Board. It is however noteworthy that in the past, the Bank disposed of some of its properties in Ghana and outside Ghana to staff and non-staff based on the realities on the ground at that point in time.

Where Management after having considered all information, finds it necessary in the long term interest of the Bank to dispose of property, it will follow due process in obtaining the relevant and requisite corporate approvals.

Property portfolio management is one key area we are focused on improving so that all properties begin to contribute positively to GCB’s brand perception.

6. COMPARISON OF NEW MANAGING DIRECTOR’S SALARY TO THAT OF HIS PREDECESSOR. Reference was made to huge disparities between the salaries of the current MD and his predecessor. The basis of the comparison was inaccurate. a. It suggests that the previous MD’s compensation was even lower than that of his two Deputies. b. The figures used for the MD’s predecessor did not include his allowances. c. The previous MD left office on the 3rd March, 2010 which meant that his salary and allowances were not adjusted for 2010 increase. d. The current MD was recruited from the open market during which process market benchmarks were considered. e. The remuneration decisions made by the Board were informed by market information.

7. OUTSOURCING OF PAYROLL TO KPMG Payroll outsourcing is not new and leading companies in Ghana have followed this trend. KPMG has more than 10 years’ experience in processing salaries for companies in Ghana. The negotiated service cost is USD 5,000 per month. The Board considered and approved this transactionbased on potential benefits to be derived by the Bank.

8.CONFLICT OF INTEREST AS A RESULT OF THE MANAGING DIRECTORBEING AN EX-EMPLOYEE OF KPMG

The Managing Director of the Bank left KPMG 22 years ago and has since worked with other organizations. Decisions about contracting-out services go through due process including obtaining Board approval where required. The Managing Director does not and cannot unilaterally award such contracts.

9. PRIVATIZATION Management would like to state categorically that it has not considered and has no intention of recommending to the Board to sell the Bank to any individual or company.

Our vision is to build a formidable, respected and self-sustaining Ghanaian Bank, which is able to compete and rival other banks in Ghana and on the continent. The Bank paid a record total of GHC 30 million in corporate taxes and dividends to the Government for the year 2010.

We want to set an example for all companies in which Government owns a stake in Ghana. We are already demonstrating this by the steps we have taken which have resulted in a dramatic increase in the market value of the Bank from GHC193 million to GHC 787 million in the past 2 years.

Increasing the market value of the Bank is the surest and safest way to protect the Bank from being taken over. GCB will not be prey to any Bank, we will be a predator.

Management wishes to caution that such reports as those being carried by the media could undermine the performance of the bank and its market value as well as wipe out the potential benefits that would accrue to all stakeholders.

Change is the only constant in today’s world. The challenge we face may seem daunting but we must confront our fears in order to ensure the long term sustainable growthand profitability of GCB. The Board and Management have initiated several new projects in recent times, aimed at re-positioning the Bank, improving the brand and creating an even greater Bank.

We hereby appeal to the media to verify information it receives before disseminating it to the public. This we believe will go a long way to protect the interest of this great national asset - GCB.