Revoking a Banking License 

Mr. Gershon P. Anumu

-Mandatory to inform the bank prior to but….

Many followers of events in the country’s banking sector will recall that the Bank of Ghana revoked the licences of UT Bank and the Capital Bank in August 2017.

In the same period (August) 2018, the Royal Bank, uniBank, the Beige Bank, Construction Bank and the Sovereign Bank also had their licences revoked for committing similar offences. As required of the Central Bank, it formed the public with compelling reasons that informed its decision to revoke the licences.

By way of recap, the reasons included insolvency resulting from the capital inadequacy, high levels of non-performing loans above acceptable limits (deteriorated asset quality) and weak corporate governance.

The public discourse on the crises- the root causes and the effects has been topical and emotionally-laden mainly influenced by the huge bail-out amount the banks received from the Bank of Ghana, the lender of last resort, but could not survive.

The social standing of key persons involved in the debacle also inflamed people’s emotional cords. Surprisingly, it appears many individuals might not have brought their attention to the legal provisions on how banking licence is revoked.

Commenting on the recent revocation, a director of one of these banks expressed his shock –as we speak, the shareholders have not been told why the bank was collapsedand had wanted the bank or its directors were informed prior to the exercise. I deeply share in his sympathies. Based on this sentiment, I decided to share with you my basic understanding of the provisions which touch the heart of the matter as enshrined in the Banks and Specialised Deposit-Taking Institution Act (930) 2016.

Ground for Revocation

To start with, the ground for revocation can be well appreciated by understanding the layers of the Banks and Specialised Deposit-Taking Institution Act (930) 2016. For the benefit of those reading this column for the first time, it is worth re-emphasising the fact that CAMELS’ brain was used to develop Act 930 and other related matters. This CAMELS’ brain is composed of Capital Adequacy, Asset Quality, Management, Earnings, Liquidity and Solvency. As long as banking business remains, this CAMELS’ name is commonplace.

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The Sections with sub-headings in the Act (930) are in line with the CAMELS –Capital (Capital and Reserves), Asset Quality (Restrictions on Lending and Investments), Management (Ownership and Control), Earnings (Accounts and Audit) Liquidity (Liquidity). Solvency determines the bank’s ability to meet its obligations when they fall due. Solvency depends on the management’s efficient decisions and the extent of care for the bank. (In)solvency is determined by the Bank of Ghana when it wants to press the revocation red-button.

In all respects, these nuggets clearly state the ground rules upon which the Bank of Ghana stands to revoke a bank’s license. The much-talked-about offence of weak corporate governance involving key persons (the people factor) in the leadership of the banks was established under Management (Ownership and Control).  Consequently, revoking a banking licence can either be permissible or mandatory and determined by the gravity of the offences.

Permissible Revocation

The Act makes it permissible for the Bank of Ghana to revoke a banking licences inherent in the wording mayin Section 16(1) which further highlights the following offences including but are not limited to: an applicant providing false or misleading information for licence, engaging in unsafe or unsound practices, persistent breaches of the Act or directives. Also, when a bank carries on business in a manner which is contrary to the Act or harm depositors’ interests, its licence can be revoked.

Mandatory Revocation

It is worthy to state that Section 123 (1) of the Act explicitly makes it mandatory in the wording shall for the Bank of Ghana to revoke a banking licence and initiate receivership. “Where the Bank of Ghana determines that the bank or specialised deposit-taking institution is insolvent or is likely to become insolvent within the next sixty days, the Bank of Ghana shall revoke the licence of that bank or specialised deposit-taking institution.”

Coming from these facts, any of these options (either permissible or mandatory revocation) which the Bank of Ghana decides to adopt then answers the question of whether it should inform the bank or not (and by extension the key persons) before pressing the red button.

 

Notify or act in the Public Interest

Section 16 (3a) of the Act makes it mandatory under the permissible revocation for the Bank of Ghana to give notice in writing to the bank concerned and gives its reasons for the intended action (revocation). The notice offers the bank an opportunity to make a written representation within thirty days of the service of the notice.

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Based on the representation and the understanding between the Bank of Ghana and the said bank, the Bank of Ghana may change its position to revoke the licence or vary the proposed action as it considers appropriate.

In respect of that, the Bank of Ghana is required to communicate its final decision to the bank. On this score, I agree partially with the director in reference that (written) notice is supposed to be given to [t]he bank(s) before the liquidation, if his reasoning is premised on permissible revocation. There again, the notice even though it is mandatory, not absolute or cast in stone and the Bank of Ghana can go ahead to revoke a bank’s licence if it deems fit as stated in 16(7)- the Bank of Ghana may in cases of emergency, or in the public interest revoke the licence of a bank without notice.”

As to what constitutes an emergency, in my mind, is within the Bank of Ghana’s administrative discretion to determine. The call for prior-notice or report is further weakened on the grounds of insolvency or when the banks were severely under-capitalised beyond rehabilitation as reported by the Bank of Ghana.

In my opinion, the totality and the severity of the offences traverse permissible revocation and trigger a mandatory revocation. Hence, by revoking the banks’ licences and immediately initiated receivership, the Bank of Ghana acted in the public interest and did not necessarily have to give prior written notice to the banks concerned.

Alright! Is any person aggrieved with a decision of the Bank of Ghana regarding the issuance of a banking licence? You can appeal in writing to an Adjudicative Panel. Interestingly, Section 140(3b) of the Act 930 empowers my beloved Chartered Institute of Bankers (where professional bankers are trained) to make a representation on the panel.

I humbly submit my opinion to you. What do you say? Thanks for your responses. God bless You !

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