BoG plans GHc 400m minimum capital…increment is 233% over previous figure

September 11, 2017
Source: Richard Annerquaye Abbey l thebftonline.com l Ghana
BoG plans GHc 400m minimum capital…increment is 233% over previous figure

 

The central bank has decided to increase the minimum stated capital requirement for commercial banks to GH?400 million, a more than 230 percent increment,  the central bank has said.

The central bank is said to have met the various heads of commercial banks Friday morning and told them they have up to December 2018 to meet the new minimum capital requirement.

Discussions among stakeholders have been ongoing for months regarding what level of increment in minimum capital requirement the bank considers appropriate. The decision is said to have been arrived after extensive engagement with the industry’s stakeholders who were initially divided over whether banks must be given a longer or shorter time to meet the proposed requirement.

Industry analysts have persistently argued that the present minimum capital requirement is too low and as a result, the banks that exist lack the capital to undertake big ticket transactions that will support economic growth.

The central bank last increased the minimum stated capital of the banks about a decade ago and the new move is expected to, among other things, engineer some form of mergers and acquisitions, just as some industry analysts have continuously demanded.

There are currently 34 commercial banks operating in the country following the acquisition of Capital and UT banks by GCB Bank last month in a purchase and assumption transaction agreement.

The deal with GCB Bank, according to the central bank, became necessary due to severe impairment of the capital of the two banks forcing the industry regulator to step in to prevent their collapse as well as protect depositors’ funds.

M&As in the offing?

Following the demise of the two banks, the central bank has maintained that it will not hesitate to treat other banks facing fortunes similar to that of the two local banks, in the same familiar fashion.

The utterances by central bank governor, Dr. Ernest Addison, is supported by the Finance Minister Ken Ofori-Atta, who said there is the need to deliberately whittle down the number of local banks in the country to about 3 or 4 stronger ones that will be in a better position to support government’s agenda.

Banks, notably the indigenous ones, are in a race against time to meet this new minimum capital requirement and knowing the fate that befell the two banks would have to seek recapitalization, a merger or risk losing their banking license come December next year.

Commenting on the proposed increment of the minimum capital requirement, Executive Secretary of the Ghana Association of Bankers, D. K. Mensah also said if the outcome of some of the current fundraising 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.

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.