The economy needs about five “well capitalised indigenous banks,” Finance Minister, Ken Ofori-Atta, has said, “so that we have a system that is well represented.”
He made the comment on Friday, at the annual general meeting of the Ghana Association of Bankers (GAB), and on Monday, the central bank announced that GCB Bank, which is already the largest local bank, was taking over the UT and Capital banks, both of which are also indigenous.
Many have said 36 banks, most of which are thinly capitalised, are too many for the country, and heightened calls for the central bank to tighten regulation, as well as its own intention to increase the minimum capital required of banks in the next three weeks, point to an industry-wide desire for some level of pruning.
“Without a robust financial system, certainly, the issues of industrialisation and Ghana as a hub when it comes to finance become problematic, and our challenge then is: how do we manage the 36 banks that we have so that we can become the magnet we want to become?” Mr Ofori-Atta asked.
“Lending rates should be in single digit and this will allow the private sector to come to you to borrow and that seems to me to be a challenge as we look at the number of banks and what we have to do to strengthen them,” he added.
Prior to the central bank revoking the licences of the Capital and UT banks, there were a total of 36 banks operating in the country, with 19 of them being indigenous.
The Bank of Ghana announced that the takeover of the two banks became necessary “due to severe impairment of their capital,” and media reports suggest there are seven other banks that are also distressed at the moment.
The central bank has long been meaning to increase the GH¢120million capital requirement for the commercial banks, to a yet to be disclosed amount, and those who think the sector is saturated hope the new figure would force some mergers and acquisitions, especially among the local banks.
Deputy Managing Director of SocieteGenerale, Francois Marchal, told the B&FT in March, that: “The current number is too much for an economy like this. There are about 26million inhabitants. If you break it down, the potential customer base per bank is less than a million customers. With even one million customers per bank, it is not enough to sustain a bank in a normalised context in the long term.”
The challenge for the Central Bank, he said, is to strike the right balance between having very strong banks and not stifling competition at the same time.
According to the central bank, its approval of the UT and Capital bank takeover is to strengthen Ghana’s banking sector, ensure financial stability and protect depositors’ funds.
It assured customers of UT Bank and Capital Bank that their monies were safe and that they could continue to do business at their respective branches, which are now branches of GCB Bank.
The statement announcing the takeover added that GCB was selected amongst three others, on the basis of purchase price, cost of funding, branches to be retained, staff to be employed and impact on the acquiring bank’s capital adequacy ratio.
Suspension of listing of UT Bank
The Ghana Stock Exchange (GSE) also said in a statement that, with effect from Monday, August 14, 2017, it had suspended the listing status of UT Bank Limited indefinitely.
Having failed to publish its financial results since the end of its financial year December 31, 2015, UT, the GSE explained, was in breach of the continuing listing obligations under the GSE Listing Rules.
“The suspension has also become necessary due to the revocation of the licence of UT Bank by BoG effective Monday, August 14, 2017, in a letter to the Exchange dated August 11, 2017. In the said BoG letter, the BoG has approved a purchase and assumption agreement by GCB Bank Limited to acquire the total deposit liabilities and some selected good assets of UT Bank.”
The GSE added that it will continue to collaborate closely with BoG and the Securities and Exchange Commission to ensure that the interest of shareholders of UT Bank are protected in accordance with the GSE Rules and any guidelines or notices that may be issued by BoG.