GCB Bank looks to investment banking, others …to shore-up declining profits via non-funded income

GCB Bank is looking to increase its profit base with the introduction of investment banking services, mortgage financing, establishment and deepening of relations with foreign financial institutions, and expansion of services including forex trading.

With the purchase and assumption of UT and Capital banks, decrease in the interest rate on Treasury bills, and introduction of the Treasury Single Account (TSA) by government, the bank’s profit saw a significant reduction – from GH¢467million in 2016 to GH¢332million in 2017, representing a 28.9 percent decline.

The bank’s Managing Director, Ray Sowah, in an interview with the B&FT at its annual general meeting in Accra noted that the bank is looking into territories that will shore-up its non-funded income base as rates on Treasury bills and bonds take a significant and sustained nose-dive and the banks no longer have access to ‘free’ money from government.

“GCB was largely focused on government securities [as high as 80 percent of deposits were placed in T bills and bonds]. As rates have come down our profits have decline but GCB is close to the heart of government.

“Why should government be doing its investment banking business through Barclays, Standard Chartered and others? So, we are doing investment banking in a very big and polished way. It is not going to be part of the main bank, it will be a subsidiary,” he said.

He added that with the bank is already financing mortgage for its staff and will be pushing aggressively in that segment as well – with a major eye on affordable housing. “We have to go into that space, and this is what a larger balance sheet gives you the opportunity to do.”

In addition to mortgage financing and investment banking, according to Mr. Sowah GCB is targetting e-banking services with bespoke mobile money services to be introduced soon, and expanded forex trading which will see either all or most of its 183 branches across the country offer services.

“Previously, FX trading was limited to our Treasury department; but now with 183 branches the need for FX is all over the place, and we want people to feel free to go to our branches to access FX. We getting our feet into things we probably have not done before,” he said.

In his address to shareholders, Mr. Sowah pointed out that the bank is deepening and establishing correspondent banking relationships with foreign banks, development partners and the investor community at large.

Already, the bank has an approval for US$30million trade line by the Rand Merchant Bank of South Africa, a pending correspondent banking relationship with DBS Bank of Singapore and MUFG, the largest bank in Japan. He added that there are financing instruments by Sumitomo Mitsui Bank to support trade, project finance, liquidity and private sector financing. “Due diligence has begun for Africa Capital Investment to offer your bank a medium-term loan to support its strategic business initiatives,” he said.

Asked why it has taken so long to reshape the bank’s focus, Mr. Sowah pointed to leadership at the time.

“Today, it is a very different kind of mindset. The chairman of the board has been in banking for a very long time and I have also been in banking for a very long time in different environments, and so we are coming at this in a very different manner. If you look at our board, we have GCB experience, business experience and global experience. The mix is a very powerful one,” he said.

Mr. Sowah assured that with the implementation of global banking practices such as IFRS 9, the bank will be taking risk cautiously.

“With IFRS 9, you cannot just throw money out there. The moment there is a default you have to provide for it 100 percent, and we do not want that sort of situation. We are trying to maintain a lot of sound corporate governance practices, and at the same time we want to play vigorously in all markets.

“We do not believe that size alone makes you the leader. It is what you do, the customer experience, the way you reach out, support the economy – that is what you do,” he said.

Meeting minimum capital requirement

The bank’s shareholders voted to transfer GH¢400million from income surplus to stated capital in order to meet the Bank of Ghana’s new capital requirement. This brings GCB’s stated capital to GH¢500million, one of the highest in the market.

The bank’s Board Chair, Jude Arthur, said the move should solidify GCB Bank’s position as a leader within the banking industry. “We already have those funds in our income surplus, and therefore what we are doing is to transfer from income surplus and then to stated capital – all within our capital means. So, we are not raising it as if we are raising it externally,” he said.

Despite a transfer of funds from income surplus to stated capital and a drop in profit, the bank was able to pay dividends of 10 pesewas per share to shareholders for 2017 – albeit a drop from the 38 pesewas paid in 2016. The bank is the only listed bank to pay dividends to shareholders.

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