Frank Adu urges “cautious” lending

Frank Adu

…as GH¢5-6bn expected from minimum capital raise

With banks gearing up to raise their stated capital to GH¢400million each from the current rate of GH¢120million, the industry is expecting about GH¢5-6billion in fresh capital – and Frank Adu, Managing Director of CAL Bank, is urging his colleagues to be cautious in lending so as to avoid bad loans.

“If bad loans plague the industry, even two or three banks, it affects the other banks despite competition in the sector. We must all be careful about how we deploy this new capital that we raise,” he told the B&FT.

“There is no rush in deploying the capital, even if you go take money from PE [private equity] investors who will be looking for quarterly results and pushing you. As manager of the bank, you must be careful and circumspect in deploying the money so that you avoid bad loans,” he said.

Speaking at CAL Bank’s turn at the stock exchange’s Fact Behind the Figures, Mr. Adu, who stated that his bank will be meeting the central bank’s capital requirement either by acquisition, merger or fresh capital injection, noted that the industry cannot afford another bank collapsing.

“It is very simple; if there is a lot of liquidity and it is from investors, they will be looking for return. And so you – managing the equity resource given to you – will be forced to invest these monies; and if you are not careful, you will be in a hurry and make bad loans.

“The banking sector is subject to a lot of contagion, which is why even though we are in a lot of competition we don’t want another bank to get into trouble, because if another bank gets into trouble we can all get affected,” he stressed.

With more than 30 banks operating in the country – and more than 90 percent of them requiring extra capital to meet the new requirement – the industry could see more than GH¢5billion in fresh capital, especially if all banks seek to survive the increment without mergers or acquisitions.

The B&FT’s analysis of current paid-up capital and income surpluses of all 34 universal banks shows that apart from GCB – which has a total paid-up capital of GH¢703million, GH¢100million being paid-up capital and GH¢603million in income surplus as at July 2017 –most of the local banks will have to find millions to recapitalise.

All other indigenous banks, except uniBank, have a capital shortfall of between GH¢50million and GH¢320million that must be remedied by the December 31, 2018 deadline or risk being classified as undercapitalised banks – a tag that may lead to the loss of significant business and ultimately their demise.

The National Investment Bank (NIB) leads indigenous banks that have to raise millions in their recapitalisation drive. The NIB has a capital shortfall of about GH¢255million; it had a stated capital of GH¢70million and an income surplus of GH¢74million as at July 2017.

The ADB, a publicly-traded company with majority government ownership, has a capital shortfall of GH¢310million and a stated capital of about GH¢275million – but a negative income surplus of about GH¢185million.

Other local banks such as Prudential, Omni, Beige, the Royal Bank, Construction Bank, GHL Bank and UMB, among others, have a capital shortfall of between GH¢190million and GH¢320million.

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