Recapitalization policy to reduce banks

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Even before it announces the new capital requirement for banks, snippets of information picked by Business Finder suggests that Bank of Ghana will implement a new recapitalization policy that will deliberately lead to mergers and acquisitions in the banking industry.

This paper further gathers that the Central Bank motive is to see less than 20 but bigger banks in the sector after the recapitalization has been enforced within a short possible time.

This will be similar to that of Nigeria where the number of banks was reduced from 89 to 25 mega banks. The consolidation programme in Nigeria saw some banks hitherto in operation being swallowed up by some other banks or altogether being liquidated.

The new minimum capital requirement is in line with the adoption of Basel II attempts to integrate Basel capital standards with national regulations, by setting the minimum capital requirements of financial institutions with the goal ofensuring capital adequacy of banks.

It is being bundled between GH300 million and GH500 million, and will compel many banks particularly the indigenous ones to raise additional capital through the stock market or private placement. Most of the recent license banks will also have no option but to merge with their counterparts.

Indeed, the Finance Minister, Ken Ofori Atta at a recent meeting this week told the media that their wish is to see very large and strong banks that will drive rapid economic development. Most Ghanaian banks cannot underwrite big ticket transactions unless they form a consortium.

Executive Secretary of the Ghana Association of Bankers, D.k. Mensah also said if the outcome of some of the current fund raising activities undertaken by some banks in the country is anything to go by, there is a strong indication that banks will struggle to raise additional capital especially the locally owned banks.

“Given these expected challenges in raising funds, will the expected increase in the minimum capital enhance the consolidation prospects and reduce the number of banks operating in Ghana? It is unlikely to affect foreign owned banks. Larger capitals will inno doubt enhance the ability of banks to underwrite bigger transactions and support economic growth but will itbe fair to the local banks? Should the regulator take a relook at the licensing regime for banks once again?

The cedi to dollar ratio was about 1:1.2 when the new capital of GH¢60 million was announced by the Central Bank in 2008 and subsequently to GH¢120 million. However the cedi to dollar ratio now stands at about 1:4.5.

A recent assessment of banking regulations of seven advanced economies in Sub Sahara Africa by Deloitte revealed that Nigeria has the largest minimum capital requirement of US$159 million.

There are presently 34 banks in the country. Citi Bank, Ghana International Bank, Exim Bank of Korea and Bank of Beirut has representative offices in Ghana.

Source: Augustine Amoah || The Finder

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