All was set for the play to start in the newest and most magnificent theatre of all time. Located on the high-street of the republic, the lighting, curtains and props in the auditorium provided beautiful scenery. The audience from the banking fraternity filled the auditorium to full capacity. The men were dressed in suits with bowties and the ladies in velvet dresses of all shapes and sizes.
Guitarists heralded the major character’s entry to the stage by playing cymbals to the melodies in Pat Thomas’s ‘Sika Ye Mogya’. This was followed by stanzas of the assurance and joy of salvation song ‘Will your anchor hold in the storms of life?’.
Seemingly, (Mrs.) Caroline Otoo-the Secretary, Bank of Ghana, came on stage with a brief message for the audience. With a clear tone, she caught the audience’s attention: “The Bank of Ghana announces a new minimum capital requirement as part of a holistic financial sector reform plan to further develop, strengthen, and modernise the financial sector to support government’s economic vision and transformational agenda. Looking ahead, banks will require a more sophisticated and robust capital framework that is adequate to transform the banking sector and consistent with the growing risks, levels of sophistication and exposure banks are currently facing”.
Banks will be required to meet the required minimum capital of GH¢400million by end of December 2018 through fresh capital injection, capitalisation of income surplus or a combination of fresh capital injection and capitalisation of income surplus.
Interlude [Mixed Reactions]
She moved backstage and the audience (bankers) looked on waiting for the next character to come on stage. Some of them started murmuring with grimaces on their faces after hearing the announcement, though there was a consensus among them in favour of a higher capital requirement. While a group of them was of the view that the amount and deadline are reasonable and within the reach of their resources, others considered the quantum too high to attain within the timeframe.
Act-1, Scene-2: Flashback
Like the Monetary Policy Committee Meeting held on September 25, 2017, the Governor, Dr Ernest Addison, was driven to the stage dressed in a three-piece suit with a team of senior bankers. After the exchange of pleasantries, a financial journalist courteously approached him. This is an excerpt of the dialogue that ensued between the two:
Journalist: With respect to the recent increase in capital requirement, going through your statement [issued on announcement day], will there be some waivers for some of the struggling banks? The same thing was said [when the capital requirement was increased to] GH₵120 million…. If you look at their June half-year results, most of the banks still have their capital position below the GH₵120million. What is going to happen to them?
Governor: At the moment, we are trying to focus on the new minimum capital requirement that we have set; that is, the GH₵400million [to be satisfied by] December 2018. And with your concern [as to] whether the GH₵400million will be enforced, we have given indication that we will enforce it. We will ensure that banks which are in operation by the end of December 2018 have met the minimum capital requirement. So, I have no doubt in mind at all about the Bank’s commitment in ensuring that this particular requirement is met.
Journalist: On the recapitalisation [of commercial banks], some financial analysts were proposing that the Bank [should] introduce the fragmented banking system, whereby not just one flat minimum capital requirement will be required of all banks but different ones for banks based on their role in the economy. Why didn’t the central bank consider this option?
Governor: The uniform capitalisation – the universal banking model – [I guess] this is the question that you are raising. I have emphasised at different fora that we have a fairly differentiated financial sector in Ghana. Because, apart from the banks, we also have savings and loans…we have all types of financial institutions that cater for the inclusion agenda, improving access to financial services – including the microfinance institutions. But we want banks that will have the capacity to be able to help transform this economy. And having a financial sector or banks that can mobilise adequate resources and big-ticket transactions is crucial in being able to deliver that transformation. And this is why we are emphasising the strength of the banks’ capital.
Journalist: It is the view of some market analysts that the number of banks for our economy is too high…and then you have banks that have problems with meeting the minimum capital requirement from time to time, and [meeting] liquidity requirements from time to time. Will the central bank consider capping the number of banks that we have in the country?
Governor: The issue of number of banks being too high and they not being able to meet capital requirements is precisely the reason why the Bank of Ghana raised the minimum levels of capital. So, we expect that the minimum levels of capital will help to address that problem rather than putting a ceiling per se on the number of banks.
Journalist: Since you announced the new capital requirement, have you received proposals from banks on mergers or take-overs?
Governor: Yes, we have received a few. I can tell you that if you look at the structure of the banks in terms of shares of banks, in terms of deposits and in terms of assets, you will find that you have a cluster of small banks with less than five percent share in deposits… that is about 10 or so banks. Similarly, you will find the same cluster or similar cluster of banks with assets that are less than five percent. So, there are really 10 or 15 banks that belong to that part of the graph. We expect there will be consolidation in that sense. How that consolidation takes place, we want it to be market-driven; let the market come and decide on how they want meet the levels of minimum capital that we are asking for.
[The Governor then went off-stage to attend to other pressing commitments for the day.]
In a majestic walk, the President, Nana Akufo-Addo came on stage with his lieutenants. The audience stood to give him honour. Here is the delegation of the Association of Indigenous Universal Banks ready to pay a courtesy call on him with a mission – “Your Excellency, errrrm…errrrm [their spokesperson stammering] we kindly hold your feet. We need your intervention regarding the GH¢400m recapitalisation and the deadline. Governor Addison, errrm…errrm …errrm says he will not extend t-h-e, t-h-e (still stammering and tapping the foot on the floor) t-h-e the deadline. We want the time exten-d-e-d to 2022.”
CAL Bank’s, Frank Adu (Mr.) walked briskly with ‘swagg’ onstage, broadly smiling with a briefcase in his hand. The president and the audience watched him with signs of surprise on their faces. He showcased his bank’s financial results at the end of December 2017. With his deep and distinctive baritone, he declared: “I am the senior-most CEO here; managing a local bank but always thinking globally. Look at my income surplus. I am inviting you to my AGM on May 3, 2018. I am in a commanding ‘leeead’ to recapitalise”. He walked with more ‘swagg’ on the stage, while receiving applause from the audience. What ‘swagg’! He went backstage and the curtains dropped to end the drama.
Is the GH¢400m minimum paid-up capital a double-edged sword? From the flashback (Act-1, Scene-2), we realised the strong indication from the Governor that the deadline for recapitalisation will not be extended. Now, the April 04, 2018 edition of the Daily Graphic has reported that some indigenous universal banks have made a passionate appeal for the president to intervene and ensure that the Bank of Ghana (BoG) extends its December 2018 deadline to 2022. To them, the deadline is too short to mobilise enough capital and poses a threat to their business if it not extended.
Will the President intervene with a fiat? If he does, then his kind gesture could calm nerves and put a smile on the faces of local bank managers. But won’t any move to prevail upon the Governor to extend the deadline reignite the debate on the Bank’s independence – even if by coincidence the central bank itself upon reflection defers the date? From my viewpoint, the appeal to the president for intervention could have been done without necessarily courting the media’s attention as far as the lobbying is ethical.
I am grateful for your time with me. God Bless!
Postscript (PS): This write-up is the author’s appreciation of events since the notice of the new paid-up capital was released on 11th September 2017 and not a real theatre (stage) performance by the notable personalities.