Ghanaians woke up on Monday 14th August, 2017 to the sad demise of two of the nation’s indigenous banks; UT Bank and Capital Bank. GCB Bank we’re told won the bid to takeover these two former competitors. A former deputy Governor of the Bank of Ghana and the running mate of the NPP in the 2016 polls Dr. Mahamudu Bawumia warned that eight banks in Ghana risked collapse due to the continuous hikes of bad loans on their books. Could this be the reason why these banks have fold up? Analysts and players in the banking industry have been on the lookout for this for some time now.
Capital Bank was adjudged as the Best Growing Bank, Best Bank in Deposits & Savings and Best Bank in Household/Retail Banking for the year 2015. Fast forward 2017 they are no more, what could have gone wrong? How are these awards judged? Do banks provide credible facts and figures to warrant the awards and accolades that accompany the feats chalked. How can a bank which won the Best Bank in Deposits & Savings among thirty plus other banks fold up in two years? Did the regulator see this coming? Did they raise any red flags? These and many other questions deserves some answers from the regulators, the board and management of these banks.
Dr. Bawumia a former deputy Governor of BoG believes, “The asset quality review of banks, conducted in 2015, shows significant vulnerability of banks to current economic conditions and that if the affected banks were to fully provision for all the bad loans, a significant number of them will collapse.” The Bank of Ghana, in its first financial stability report for 2016 revealed that bad loans on the books of commercial banks in the country increased by 14.9 percent to 4.52 billion cedis in 2015 against the 2.72 billion cedis recorded in 2014.
This shows at least that the regulator knew of this impending insolvency by these two banks. The sounding of the alarm has been lauded by many to be best the regulator could have done under the circumstances to prevent total loss of confidence in the sector. Moving forward, what is the regulator doing about the increasing bad loans in the sector which stifles growth of the banks? Bad loans stood at 11.2 percent in May 2015 by May 2016 it had risen sharply to 19.3 percent according to economic and financial from the central bank. The level of these bad loans is widespread and the earlier the regulator together with the boards and managements of these banks sit up to tackle it the better for the sector and the Ghanaian economy. There is a law mandating Deposit Insurance by these bank, the regulator should enforce this to the latter. Adebowale Atobatele, general manager of Dun & Bradstreet Ghana believes a credible referencing system can arrest this trend of high Non Performing loans in the sector.
Ebenezer Nii-Tackie Oblie is of the view that, NPLs would reduce drastically if these Banks follow the law to insure their deposits as well as their loans. “Loan insurance would allow the insurance companies to enforce Corporate governance principles and this would indirectly keep them from engaging in bad deals.” A mandatory Credit referencing system would also put serious checks into the lending process, he adds.
The licenses of UT Bank and Capital Bank have been revoked and at the same time the
Bank of Ghana has approved a Purchase and Assumption agreement, allowing GCB Bank to
take over all deposit liabilities and selected assets of both UT Bank and Capital Bank. These
actions are in line with the provisions of section 123 of the Banks and Specialised Deposit-
Taking Institutions (SDIs) Act, 2016 (Act 930). In particular, the action by the Bank of
Ghana involves the following:
– Revoke the licenses of UT Bank and Capital Bank. ,
– Possess the banks and appoint a Receiver;
– Execute a Purchase and Assumption Agreement (P&A) allowing GCB Bank to take
over all the deposits and purchases of selected assets. The rest of the liabilities would
be settled by the receiver through the realisation of the assets.
Credit: Ghana Talks Business