Ghanaians woke up on Monday 14th August, 2017 to the  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 lot has happened since the news broke out, GCB Bank has rebranded all branches of defunct UT Bank and Capital Bank. GCB Bank has assured depositors of safe custody of their funds, and it says its beginning staff skill evaluation, retrenching in the offing? Time will tell…

In this interview, Ghana Talks Business’ Paa Swanzy-Essuman engages Paul Eshun an Investment Banker with Parkstone Capital on the takeover and other matters arising.
Paa Swanzy-Essuman: GTB

Paul Eshun: PE

GTB: Do you think the sentiments of the public is well managed in the wake of the takeover?

PE: The takeover has taken both industry players and the layman by storm. In the wake of such events, panic is definitely the next best option for the market to look at which might push a ripple effect on the entire banking system. With such glaring consequences in the short or near term, I certainly do not agree or totally support that the sentiments of the public are being well managed. Communication should be directed to the market cohort of the two banks being the SME’s and the informal sector. There should be an all-out media consultation on all channels and mediums. There are still some unanswered questions and the public should have answers to them.

GTB: The takeover had been a bit too abrupt, we woke up Monday morning to be hit by this. Could this cause some panic in the banking system

PE: There is definitely some sort of panic when such events happen. The position of the two banks in general terms can be referred to as systematic positions when their risk classifications and contributions are considered. Their failure does not just bring panic to the less than 40% banked community our country boast of, but, it poses huge credibility risk for the other banks and the Country as a whole. Note: Could develop this point of how it might impact on the cost of funds from when other banks go to the international market and how other jurisdictions would rate would supervisory systems.

GTB:  How better could the regulator and all the other players manage this?

PE: Post crisis, the regulator should continue its assurance to the public of the security of their deposits and investments (investments of debt holders). The analogy of DKM, ASN and that of the erstwhile capital Bank and UT Bank should be differentiated. DKM operated a Ponzi scheme, ASN was not a bank and had committed short term funds to long term investments, and then we have this two Banks which on face value could not meet their liabilities with their assets. These distinctions should be clearly spelled out to prevent mistrust in our banking system.

GTB: What are the possible causes that make banks insolvent?

PE: A bank becomes insolvent when it’s unable to meet its obligations to its depositors or other creditors because it has become too illiquid to meet its liabilities (obligations). It should be noted that liquidity tends to arise when the bank can general (with a margin of acceptable error) match its assets to its liabilities. Failure to do so brings the state of insolvency. But with these two banks, it’s believed that their insolvency was caused by the inability to raise additional capital, mismanagement of TPF (third party funds) which proper documentation, inadequate capital or assets to meet deposits (liabilities) with short term/ near cash assets, and the high cost of operations.

GTB:  Are we likely to have more of such happenings in the banking sector in the next few weeks/months?
PE: Information from the regulator suggest some other less robust banks have presented plans that are considered adequate in the medium term. On such basis, we are not likely to see such happenings in our markets, as such event would completely deteriorate the remaining confidence the BOG is trying hard to protect. Create a link between the recent happenings to the two banks as it puts pressure on any ailing bank(s) if they are to up their game.

GTB:  UT Bank was seen to be widely diversified, could this diversification be blamed in part to the insolvency?

PE: I stand to disagree with this assertion as diversification in general sense bring the ability to withstand risk and shocks. This comment focus on the advantage to the group (the holding group) more than the effects of such diversification on UT Bank since it’s the bank that’s in the focus. Another school of thought may look at it this way, that the resources of all the subsidiaries could be put together to revive the company or make it stronger.

GTB:  The government is pulling all government funds from banks into single treasury and therefore withdrawing liquidity from the banks. How could this affect the industry as a whole?

PE: This idea or policy, although I agree with the government, should not be done with haste and speed. There should be a road map or plan to gradually in the space of 5 to 7 years pull funds. But, in the wake of this sudden development, GOG should with immediate effect halt any plan to make this policy realized. The best time for this to take it full start would definitely be after the minimum capitalization has been realized by the BOG, with which we anticipate further merges (not abrupt takeovers like this), listing on the Exchange for long term funds, capital injection from existing or new shareholders. There is also the need for the government to expedite actions to pay the commercial banks all energy sector debts owed to commercial banks to improve their NPL before the implementation of the TSA.

GTB:  In terms of staffing, what would be the likely outcomes?

PE: There is some opportunity cost that would be realized and a huge staff base would not be one of them. In the interim, staff (not senior manager) would continue their normal business but, top management would have their positions dissolved within the short term. The question is, which firm would want to retain the chief credit officer and chief financial officer after their inability caused the takeover of their own company.


Credit: Ghana Talks Business