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Opinions of Monday, 7 January 2019

Columnist: Dadzie Peter

Recapitalization of banks and its impact on the economy of Ghana

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On 11/09/2017, the Bank of Ghana notified banks and the general public with the Notice No. BG/GOV/SEC/2017/19 about its decision to review upwards the minimum paid-up capital requirement from 120 million cedis to 400 million cedis (that’s about 233.33 percent increment) as part of a holistic financial sector reform plan to further develop, strengthen and modernize the financial sector to support the government’s economic growth vision and transformation agenda.

This notice was met with public outcry and mixed reactions especially from the banks in Ghana. For instance, Financial Analyst and CEO of Sam Bed Consult, Sam Bediako Asante said the figure is lower as it may least affect the attempts to achieve mergers and acquisitions. In his view, Dr. Lord Mensah-Economists at University of Ghana Business School, the move poses a threat to the local economy as local banks are likely to be taken up by larger banks which will greatly distort government’s funding needs in the long run. Finally, Mr. Emmanuel Akrong intimated that more capital helps banks better absorb adverse shocks and thus reduces the probability of the financial distress and increases business confidence.

At long last, the roller-coaster banking reforms and thus the recapitalization ride which saw the collapse and revocation of the licenses of about 9 banks is over with 23 out of 34 banks emerging with flying colours. In a press release by Bank of Ghana on 04/01/2019, among the 23 banks that met the minimum paid-up capital requirement, 16 banks sailed through with an injection of a fresh capital and capitalization of income surplus, 3 resulting banks out of mergers also sailed through and 5 indigenous banks sailed through with an injection of fresh equity capital from some private pension funds through a special purpose holding company named Ghana Amalgamated Trust Limited (GAT).

Sadly, all the 9 collapsed banks in Ghana are indigenous banks and this has become a setback to the effort of promoting indigenous Ghanaians to take control of our economy by building strong local institutions. Apart from the fact that thousands of Ghanaians have been rendered unemployed, the innocent taxpayer has been saddled with about 12 billion cedis debt for the cleaning of the mess caused by the collapse of the indigenous banks.

Surprisingly, in all this mess created by some self-seeking board of directors, shareholders and managers of the collapsed banks, no single person has been prosecuted. Again, Bank of Ghana officials who abandoned their supervisory roles or clandestinely licensed banks with questionable capital sources are yet to face the full rigors of the law. We can only hope that, Mr. Osei Gyasi, the head of banking supervision at the central bank’s promise that officials who are complicit in the liquidation of some banks will be punished will be fulfilled swiftly.

Finally, the minimum capital directive will strengthen and make the banking sector more resilient to shocks as well as foster stronger corporate governance structures and risk management systems and practices. Again confidence in the banking sector will be restored and maintained. Surely, this roller-coaster ride will lead us to a fulfilling destination.

Thank you

Dadzie Peter

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