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Local banks, govt debate banks recapitalization deadline

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Adnan Adams Mohammed
Some managers of indigenous banks in the country have petitioned the President Addo-Dankwa Akufo-Addo requesting for an extension of the December 31, 2018 deadline set by the Bank of Ghana for their recapitalization.
The local banks said the current increase in the minimum capital from GH¢120million to GH¢400million which was announced by Bank of Ghana in September 2017, and giving the banks only one year and three months to comply, is too short.

“If the duration is not extended sufficiently, its attainment by the indigenous banks could lead to a wholesale transfer of the indigenous banks to foreigners. Such a situation will put the control of the banking industry in the hands of foreigners which could have future negative consequences on the economy particularly in the provision of credit to the agricultural sector and the informal sector in general,” the local banks said in the petition.

However, the Council of State has urged the banks to consider merging, if they cannot meet the Bank of Ghana’s new minimum capital requirement by the deadline set.

The body of eminent Ghanaians met the central bank last week over the petition submitted to President.

However, the head of government’s economic management team, Dr. Mahmud Bawumia and the Governor of BoG, Dr. Ernest Addison have opposed the idea of extending the deadline.
The two sided with the suggestion of the Council of State, calling on the local banks to merge in order to grow their capital base.

Dr. Addison, for example has consistently maintained that the banking system must be cleaned to safeguard the financial sector hence the central bank will implement the requirement per its time table.

At his most recent meeting with journalists to announce the policy rate, Dr. Addison stated that “a comprehensive asset quality review conducted by the Bank of Ghana in 2016 showed severe deterioration in asset quality in the banking sector”.

Buttressing their point with examples from Nigeria and Malaysia both Dr Bawumia and Dr Addison argued that, local banks can consolidate to strengthen their position in the banking industry.

They added that local banks can easily merge in a short time to control a significant portion of the industry.

The Bank of Ghana has said the upward adjustment of the capital requirement forms part of a holistic reform plan to further develop, strengthen and modernise the financial sector to support economic development.

Consequently, the Council of State members said, it supports the measures instituted by the central bank to ensure prudence in the banking sector and urged the Bank of Ghana to intensify its public engagement.

“Ultimately, depositors’ interests must be protected at all times and the public needs to be assured to boost confidence in the banking sector,” acting Secretary to Council, Peace Okantey, said in a release last week.

The Council of State is convinced that mergers will enable the indigenous banks to compete favourably and ensure sanity in the banking sector.

Meanwhile, the central bank has indicated that five banks have so far met the new minimum capital requirement of GH¢400 million well before the deadline.
Apparently, the indigenous banks have accused government of contributing to the low capacity of local banks.

They pointed out that, the penchants of successive administrations giving what they call ‘juicy contracts’ to foreign banks is the bane of local banks.

They maintained that not all local banks want to do big-ticket projects, explaining that they can be profitable once they identify unique areas to operate.

Per their petition, the local banks are pleading with the presidency to extend the deadline to December 31st, 2022.

By this, the banks have made proposals to provide at least GHC170 million in capital by end of 2018, GHC220 million by end of 2019, GHC280 millions by end of 2020, GHC340 million by end of 2021, and GHC400 million by 2022.

They warned that any attempt to implement the 2018 deadline, may force a takeover of all indigenous banks by foreign investors who have already made proposals to the local banks.

 President Akufo-Addo has taken steps to set up a 10-member committee to act on the petition by local banks for a reprieve over the minimum capital requirement.

The decision to set up the committee was reached at an earlier meeting between the President and representatives from the local banks.

The 10-member committee will comprise of three members from the Bank of Ghana, three members from the Ministry of Finance, three members from the local banks and a chairperson to be nominated by the president.

The Committee should begin sitting by Tuesday 17th April and the final report be ready by 26th May.

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