Local banks seek President’s intervention in minimum capital demand

Some indigenous universal banks have made a passionate appeal to the President to intervene to ensure that the Bank of Ghana (BoG) extends its December 2018 deadline for local banks to recapitalise from GH¢120 million to GH¢400 million to next four years.

According to the banks which have come together to form an association christened: The Association of Indigenous Universal Banks, the period required by the central bank for them to increase their minimum capital by the close of the year was too short and posed a risk to their business.

In a special letter signed by all the managing directors and chief executive officers of the local banks and addressed to President Nana Addo Dankwa Akufo-Addo a couple of weeks ago, they maintained that asking banks to recapitalise to make them stronger was a good idea.

However, they said, the period requested for them to comply was short and, therefore, asked for extension to enable them to effectively do so.

Recapitalisation plan

The local banks said they were in a better position to recapitalise up to GH¢170 million by the end of the year, GH¢220 million by the end of 2019, GH¢280 million in 2020, GH¢340 million in 2021 and GH¢400 million in 2022.

The appeal by the local banks comes at a time when some analysts and experts in the financial services sector have cautioned the central bank to deal cautiously with the universal banks, particularly the local indigenous ones which do not have any foreign partnership or ownership.

According to the analysts, the local banks were the ones that mostly provided funding for small and medium enterprises (SMEs) and many other businesses that required small amounts of money to keep their businesses afloat.

They warned that any attempt to implement policies that might make the local indigenous banks suffer would spell doom for the economy.

According to them, much as it was important for the banks to be well capitalised to take up big ticket transactions, forcing them to do so within a limited period could backfire.

Arguments

The local banks argued that some foreign banks were sitting on the sidelines to see which of the local banks would not be able to raise the minimum capital for them to take over, either through mergers or acquisitions (M&A), bringing along with them redundancies, a phenomenon likely to worsen the unemployment situation in the country.

They said even if any of the local banks was to consider that option, the period left to ensure that it was not shortchanged in the deal was too short.

On the option of using the Ghana Stock Exchange (GSE) to raise equity through initial public offers (IPOs), the banks again raised issues about time and also the ability of the public to buy what the banks would require to meet that minimum capital of GH¢400 million, equivalent to almost $100 million.

In terms of private placement, the sale of stocks, bonds or securities directly to a private investor, rather than as part of a public offering, the banks were of the view that there was the need for due diligence to be made by those interested before they would make a move.

They said should that be done in haste in their quest to beat the deadline, they might not be able to exhaust the entire process and their banks might be taken for cheap.

 With regard to raising foreign equity, the banks maintained the argument that there was still more time needed for due diligence to be made to ensure that they did not lose out on the deals.

Support for SMEs, others

With regard to their support to the various SMEs in the country and players in the agricultural sector ,among other things, the local banks argued that they had always been at the helm of such transactions and the beneficiaries of those facilities would strongly attest to that fact.

They claimed that many of the so-called big banks considered the SME sector too risky and refused to deal with players in that sector.

They said while they spread their branch networks to every nook and cranny of the country, the other banks did not do so and wondered what might happen to the economy if local banks also shied away from SMEs.

Background

In September 2017, the BoG demanded of the universal banks to up their capital to GH¢400 million. It gave them one year three months to fully comply with the deadline in December 2018.

The reason given by the central bank for that directive was to, among other things, get the banks to be able to undertake big ticket transactions.