Ghana’s banking sector is currently experiencing difficult times, influenced by the liquidation of seven banks within a space of one year. The times can be related to a wind blowing across the length and breadth of the banking sector, with its attendant effects on the banks, businesses and people’s economic well-being.
As part of cleaning the ‘debris in the sector, the government of Ghana issued a bond to the tune of GH¢7.76billion to cover the selected assets and liabilities of the seven banks. As if that were not enough, the Ghanaian taxpayer will bear the extra costs for insolvent savings and loans which will soon be liquidated by the central bank. The cases of distressed and insolvent microfinance companies are not exceptional.
Though the Bank of Ghana has since initiated many reform activities to restore confidence in the sector, there is still heightened anxiety and natural fear of the unknown among people – with the question of when and how the dust will finally settle on many lips. While Ghanaians think that their country’s banking sector is the only one passing through these challenging times, little do they know that there are other countries around the globe in similar situations. It is the wind of revocation moving across borders, and a matter of nowhere cool.
Apart from Ghana, the Bank of Tanzania (BOT) in January 2018 revoked the banking licences of five (5) banks – which included Covenant Bank for Women, Efatha Bank Limited, Njombe Community Bank Limited, Meru Community Bank Limited, and Kagera Farmers’ Cooperative Bank Limited. It should not surprise many to learn that the reasons for revoking their licences were based on the basic underpinnings which define the banking business. The banks were seriously undercapitalized, which violated the requirements stated in the country’s Banking and Financial Institutions Act, (2006). Based on the usual parlance “to promote depositors’ interests and maintain stability of the banking sector”, the BoT withdrew their licences and appointed the Deposit Insurance Board as liquidator. Meanwhile, in May 2017 the Bank of Tanzania revoked FBME Bank’s licence.
What is more, the strong winds of revocation entered the Nigerian banking circles in September 2018 and blew away the Skye Bank. The central bank of Nigeria’s (CBN) examination and a forensic audit revealed that the bank was in capital deficit and required urgent recapitalization, which the shareholders were unable to do. Before then, the bank “lived on borrowed time with indefinite liquidity support from the CBN”. Resulting from that, the central bank in consultation with the Nigerian Deposit Insurance Corporation (NDIC) established the bridge bank, Polaris Bank, to assume Skye Bank’s assets and liabilities.
In Namibia, the central bank placed the state-owned SME Bank under liquidation in 2017, with some of the issues relating to the exercise currently pending before court. “The Namibia” (a local newspaper) on October 11, 2018 reported that one of the provisional liquidators of the SME Bank, Ian McLaren, filed a writ at the country’s Supreme Court to the effect that they had discovered a total amount of N$64million was stolen from the bank and paid to Mr. George Markides in Johannesburg, South Africa. By the reports, the bank’s delivery notes with the reference ‘SME 1010’ established the evidence. The bank’s former director, Enock Kamushinda, was cited as an accomplice. “Kikiikiki, things are happening ooo!” Nowhere cool.
Waves in Central America
As fate would have it, in the wave of banking crises around the world, the Central Bank of Belize located on the east coast of Central America in July 2018 revoked the Choice Bank’s international banking licence. The bank is reported to have taken actions which the regulator considered were not in the interest of depositors. “After a special examination at Choice Bank’s offices, the central bank concluded that the actions taken by the ownership and management of Choice Bank were insufficient to properly rectify the situation,” it uncovered.
In February 2018, the central bank of Russia revoked the banking licence of Siberian Bank for Reconstruction and Development (Bank SBRD). This was in addition to the four (4) – Otkritie Bank, B&N Bank, Jugra Bank and the Promsvyazbank (PSB) – which had their licences revoked in the previous year, 2017. By the facts, these erstwhile banks used to be among the country’s 15 top lenders at one time. The reasons for revoking their licences are not far-fetched.
The regulator reported that: “The credit institution’s [Bank SBRD] financial standing has deteriorated considerably, due to large securities transactions aimed at replacing liquid assets with knowingly bad ones…. The Bank of Russia took such an extreme measure because of the credit institution’s failure to comply with federal banking laws and Bank of Russia regulations – with equity capital adequacy ratios below two percent, and decrease in the bank’s equity capital below the minimum value of authorised capital”.
In the case of Promsvyazbank (PSB), the regulator established that “it turned into a lender that financed its owners”. This fact vindicates Professor William Black’s cynical quote that ‘the best way to rob a bank is to own one”. The major shareholders, Dmitry Ananyev together with his brother Alexei, controlled over 50% of the bank and were reported to have taken over 150 billion rubles (US$2.3billion) loans, which exceeded the bank’s capital. The bad loan provisions created a gaping hole into the bank’s capital. It also came to light that the bank’s owners diverted the assets (collateral) for those loans to other parts of their empire.
Interestingly, the two (2) shareholders control another bank – Vozrozhdenie Bank. This situation gave semblance to the reported relationship between the erstwhile Capital Bank and Sovereign Bank in Ghana, which had similar undercurrents with the owners or promoters.
As part of the reforms, the Bank of Russia is beginning to tighten the rules about lending to related parties, and advocates stronger capital buffers for banks operating in the country. Regarding the Jugra Bank, its licence was revoked because it falsified its accounts. The liquidation of the four (4) banks can be considered as the tip of an iceberg. Indeed, since 2013 the Bank of Russia has revoked banking licences from over 300 banks out of the over-500 banks in the country.
The European Central Bank (ECB), in March 2018, revoked the banking licence of the Estonian bank Versobank AS for its failure to remedy regulatory breaches concerning money laundering. Indeed, banks all over the world are obliged to abhor and prevent money laundering and terrorism financing in their operations.
Our recent history in Ghana proved that the microfinance companies show the weakest link to surviving in the banking sector. But that is not far from the truth across borders: in January 2018, the Khmer Times reported that the National Bank of Cambodia (NBC) revoked the licences of 11 microfinance institutions operating outside the capital, because they failed to abide by the relevant regulations in place.
In all the instances, we realised that the decisions to revoke the licences of those banks and financial institutions were grounded in regulations. Based on these lessons, we can assert that the banking business is one of the most regulated indutries all over the world. As such, banks which survive the test of revocation are those which are compliant-oriented and managed effectively and efficiently – even in the face of negative externalities. From the foregoing experiences, whenever you hear a bank’s operating licence has been revoked you don’t have to think far for the reasons. What do you say? God bless You for reading. Have a blessed time!
The writer is a Chartered Banker