Huge recapitalisation alone not answer to banks' woes - Nyarko-Pong

Aggressive recapitalisation, which could force mergers and acquisitions, should not be forced on banks, Felix Nyarko-Pong, Managing Director of uniBank, has said.

Instead, he argues, financial institutions should be allowed to play in economic sectors they are comfortable with and have the financial muscle to operate in.

“If I want to do small businesses or SMEs, I should not be forced to raise the big capital that the infrastructure focused banks should raise. Nobody should force you. Why have we liberalised the market?

As for capital, if you have more, irrespective of the business you are, and you have profitable businesses to invest in, it is good. Even though there are a lot of opportunities, if my competence and need can only service this segment of clients, then I should be allowed to do it. You have to stay in your core competence zone,” he told the B&FT in an exclusive interview.

He is also of the view that to foster sustainable growth and spread risk across the industry, banks should pursue syndication and collaborations in financing big infrastructural projects.

“You have an economy with financial institutions within it. If you have a big project to do, what has to take place is the banks pulling together and syndicating the transaction. That is the way you build an institution within a developing economy.

Granted that that transaction doesn’t go right, which can happen, the risk becomes spread out so as not to bring the institution or industry down. That is the way to go. Risk sharing on viable projects, rather than people thinking: let us have a giant so the giant will swallow everything,” he added.

Mr. Nyarko-Pong’s views contrast sharply with those other industry players, some of whom argue that the central bank should raise the stated capital requirements of banks to a minimum of GH¢800million.

Whilst Frank Adu, Managing Director of CAL Bank, has called for US$200million as stated capita,l others, including Emmanuel Adu-Sarkodee, Group CEO of CDH Holdings and Kenneth Thompson, MD of Dalex Finance, have suggested GH¢1billion.

But to Mr. Nyarko-Pong, who was recently crowned the best bank CEO of the year at the 7th Ghana Entrepreneurs and Corporate Executives Awards (GECEA), banks definitely need capital, but what they need is adequate capital for the risks undertaken or for sector-specific interests.

“Yes; banks need to have capital, but they need to have adequate capital, and the adequacy of capital should be such that it does not only meet your stated, per regulator’s guidelines, but to cover and be good enough for all the underlying risks the business is taking.

That must be there; you also have to strengthen it [capital] as issues come up in the economy and as you yourself decide to take on more business. It shouldn’t be an end game of getting big and doing big business because you have got the capital for that. No.

The discussion must be the adequacy of the capital for the institution’s outlook and current status, rather than people just saying: ‘big is good’. But beyond these scenarios, it isn’t a numbers game or get big. So, big is not beautiful enough unless by being big you know what you are using it for. Otherwise, you are wasting capital,” he said.

Of NPLs, 15-year bond and hope of increased liquidity

Banks have struggled recently with liquidity as Non-Performing Loans (NPLs) have remained stubbornly high across the sector. Several banks have had to write huge loans off their books, which has resulted in the shrinking of profits to historic low levels, and negative growth in some cases.

Although the NPL ratio recorded in February this year stood at 17.7 percent, a marginal decline from 18 percent recorded in January, 2017, the situation has worsened in comparison to the February 2016 performance of 15.6 percent.

The central bank, in its March 2017 Banking Stability report, noted that: “the high NPLs continue to pose upside risks to the banking industry, despite the marginal decline in the energy-sector related debt exposures.”

The increase in the NPL ratio over the one year period, the central bank said, was partly due to the downgrade of some loans by banks after its 2016 Asset Quality Review (AQR), with no commensurate increase in gross advances.

With the energy sector, including Bulk Oil Distributing Companies (BDCs), debts hanging like dark clouds above their heads, banks are struggling to stay afloat while doing their best to convince shareholders that there are better times ahead.

Even though the Bank of Ghana has stated that it will increase the stated capital of banks, industry watchers believe that if high NPLs are not tackled, the increment will amount to nought and further erode the little gains made by the banks.

“If the high NPL issue is not addressed, it would be very difficult for the central bank to ask banks to meet the yet to be announced substantial increase in the stated minimum capital, Dr. Said Boakye, a Senior Research Fellow at the Institute for Fiscal Studies (IFS), an economic policy think tank, told the B&FT.

But the government has also served notice that it will issue a US$2billion 15-year bond to settle the debt, estimated to be about US$2.4billion, and use the energy levies to service the bond as it trickles in.

This is what Mr. Nyarko-Pong believes will restore much needed confidence in the banks, recapitalise them and provide enough room for lending and not just an aggressive recapilisation exercise which could have little or no impact on the economy, except leave the financial industry in foreign hands.

“The good thing is that the present government has take a much better approach…they have taken it one step further by saying they intend going out on the market basically for a US$2billion bond purposefully to repay these debts.

In that instance, the liquidity is going to come. So that aspect, which everybody is saying is a challenge, will be addressed, largely. Then, the provisions many banks have had to make, particular to the BDCs and VRA or the energy sector will also then have to be released back into profits,” he noted.

Mr. Nyarko-Pong believes that when the bond is successfully raised, the industry will then enter a new phase where it can do nothing less but lead to government’s mantra of promoting private sector development because “the government has given you money, it doesn’t want your money. You have to then do your traditional core business.”

To stress his point further, he believes that banks should grow and grow at par with their own capacity: “our capacity as institutions, our capacity as a nation. Banks will need to shore up their capital now, because the downtown in the economy has affected us. Yes, banks will need to capitalise now because there is so much hope around and the opportunities out there are good and so to help take advantage of them, we have to.

But ff you want to go into development of the ports, building roads, and other infrastructure that requires huge capital, then you should make that capital available to back that activity and in terms of doing that, I also believe that the way to go is institutions pulling together so that the risk become spread.”

The award

With 34 years of banking experience, Mr. Nyarko-Pong was recently adjudged the 2016 Best Bank CEO of the Year. Joining uniBank more than half a decade ago, he has transformed the bank from a mid-level financial institution to one of the top 10 best performing banks in the country.

He has seen and participated in some of the biggest transformations the banking sector has seen including the liberalisation and exponential growth of the sector, training of future bankers at the nation’s premier banking college, National Banking College.

The annual award is an exclusive award that seeks to reward excellence among the most committed and dedicated entrepreneurs and corporate executives in Ghana.

As an initiative of Entrepreneur Foundation of Ghana, in collaboration with Entrepreneurship Association of Ghana, and the ministries of Trade and Industry and Finance, the awards recognizes entrepreneurs who have displayed massive performance that helped them emerge out of poverty, create jobs and add value to the society.