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Despite his outfit being sufficiently capitalized, the Managing Director of The Royal Bank, Osei Asafo-Adjei, calling on the Bank of Ghana not to force all banks to attain the same level of capitalization.
He believes this could lead to excess capital for some banks, which they could lend to sectors they have no expertise in.
The Royal Bank explain that, when that happens, non-performing loans could rise further and lead to a possible collapse of more banks.
Currently, non-performing loans stand at GH¢7.15billion in April 2017 from GH¢ 5.74billion in April 2016, representing a 24.5percent increment.
“Banks should not be forced to do what Bank of Ghana wants us to do. Most institutions do not have the same interest. Some banks want to be called corporate banks and do big ticket transactions; others want to do mortgage banking; some want to do retail banking, and the rest want to focus on Small and Medium Enterprises (SMEs),” he said.
“If you are asking all these banks to have the same capital, my fear is that there could be excess capital in the system because if my specialisation is retail banking, I may not need the high capital and I could be overcapitalised.
What excess capital means is that because I am not working my capital adequately, my return on assets, and return on equity will be so low I could collapse because of excess capital and also because shareholders will not be happy with me,” he said.
Mr. Asafo-Adjei’s call comes on the back of an announcement by the Finance Minister, Ken Ofori-Atta, that the government will announce a “substantial” increment in the minimum capital requirement for the banks in three weeks.
The Finance Minister recently told bankers that an increment was needed to strengthen the banking industry, especially the local ones, and encourage mergers and acquisitions while positioning them to help support the government’s aggressive industrialisation agenda.
Mr Asafo-Adjei in an interview has assured customers and staff of the Royal Bank that, the bank is in a position to recapitalize when the Bank of Ghana (BoG) sets new limits for capitalization.
“Here at TRB, we are firmly on top of our capital situation as well as our liquidity situation,” he stated.
“This is a very sound institution, we have a very strong Board and good management and we believe that going forward we can only make good progress,”
According to the Mr Asafo-Adjei, TRB had excess liquidity and was frequently placing funds with the BoG.
He debunked reports making rounds that the bank was bankrupt, describing them as false, stressing “currently we’re nowhere near bankruptcy; we have what it takes to run the institution;
“In terms of liquidity, TRB is lending to the industry; we have more money than we need and so we are putting money into the system,” Mr Asafo-Adjei said.
Due to the general economic malaise over the last four years and the fact that banks in the country had to make substantial provisions for the mess.
“When you make provisions it affects your profits which also affect your capital so some banks had some challenges with capital but not TRB,” the CEO said.
Commenting on the plans for recapitalizing, Mr Asafo-Adjei said the bank is very aware of moves by BoG to have all banks in Ghana recapitalized.
He agreed that in principle, it is a good idea and believes a well-capitalised banking sector provides a strong back borne to the economy. He however would suggest that BoG allows banks to recapitalize based on the nature of their business interests.
“At the end of the day, the business focus of that particular Bank determines how much capital it should require,” he said.
According to Mr Asafo-Adjei, banks should be segmented into areas where their interests strongly lie and capital requirements should be risk-appetite based on managed on regulatory ratios or tiered basis.
“We should go back to the segmented banking systems of old, where we had development banks, merchant banks, housing banks and others. During those times, banks like the Bank for Housing and Construction, Co-operative Bank collapsed, not because of the segmentation, but, because of managerial deficiencies,” he said.
Mr. Asafo-Adjei noted that when the Nigerian Central Bank increased the capital of the banks, the industry saw a rise in Non-Performing Loans (NPLs), because after the banks raised the new capital, there was so much to lend, and they went lending to sectors they could not control, leading to high default rates.
“It happened in Nigeria where there were 89 banks and they were all forced to merge and within a very short time there were 25 banks. What happened was that the Nigerian banks were so overcapitalised and between 2006 and 2010, the NPLs in Nigeria shot up because there was too much money and shareholders are expecting returns and so they were forced to lend,” he said
Source: Adnan Adams Mohammed