BoG must adopt fragmented banking system - Financial analyst

A financial analyst and CEO of Universal Capital Management, Dr. Richmond Akwasi Atuahene, has added his voice to the ongoing debate of the proposed recapitalisation of commercial banks, saying the Bank of Ghana (BoG) must rather adopt the fragmented banking system, where banks are grouped into different categories with a different capital requirement for each group, rather than one minimum capital for all.

“Bank of Ghana may have to abolish the concept of the universal bank where one minimum capital requirements are prescribed for all the banks in Ghana and replace it with the fragmented banking system where banks are relicensed into commercial, merchant, development, and other specialized banks with different minimum capital requirements based on their risk appetite and business orientation,” Dr. Atuahene said.

The central bank has long maintained that it is going to raise the minimum capital requirement from the current GHC120 million set in 2013 to a figure not yet disclosed but speculators think will not be less GHC300 million, in an attempt to empower the banks to undertake big ticket transactions.

This, Dr. Atauhene, who has over 32 years experience of working in the financial sector maintains strongly that raising the minimum capital requirements for all commercial banks, irrespective of their balance sheet, will prove inimical to some private domestic banks which serve a particular need in the economy, and eventually lead to takeovers by foreign banks.

“What will be the fate for the private domestic banks that are not able to raise the additional capital or not prepared to inject additional capital? The Sector Minister and the Governor must ensure that they do not sell our birth right to the foreign banks as we have already done to the other sectors of the Ghanaian economy.

What will the Sector Minister do if the private domestic banks are unable to raise the additional capital? Any recapitalization that tries to destroy the private sector initiative in the banking sector could be disastrous for the Ghanaian economy,” he said.

He urged the central bank and the finance minister to address, firstly, the weak macroeconomic structures which, he said, will help local banks to become very competitive, before any recapitalization is introduced.

“I would like to urge the Finance Minister and the Governor to address the poor and endemic macroeconomic instability and fiscal indiscipline, weak corporate governance practices and inefficient and ineffective bank regulation and supervision before embarking on any bank recapitalization,” he said.

Dr. Atuahene is not the only financial expert with the opinion that recapitalisation is not the solution to increasing the capacity of banks.

In an interview with the B&FT in June this year, President of the Chartered Institute of Bankers, Patricia Sappor, said the BoG must consider a tiered recapitalization policy that will enable smaller-sized banks meet the capital requirement.

“Another way of looking at bank capitalization is the segmentation of banks to allow lower tiered banks that have met the initial threshold to serve particular sectors of the economy with innovative products and services whilst banks with increased capital base (higher tiered banks) finance bigger projects.

Lower tiered banks must be assisted with a clear policy so that they are not left out of the banking system. A policy to stagger bank capitalization in terms of the types of banks and their corresponding target markets is critical, timely and reasonable,” she said.

Again, Felix Nyarko-Pong, former Managing Director of uniBank, also shares a similar opinion with the afore-mentioned players.

“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 in May.