Ecobank Ghana has said that it is not in talks with any indigenous bank to either merge or takeover, as many local players struggle to meet the Bank of Ghana’s new minimum capital requirement of GH¢400million by the end of the year.
The pan-African bank is optimistic that local banks will be able to raise the required funding to stay in business, hence the ruling out of M&A in its short- to medium-term planning.
“Looking at the local banking landscape and sponsors across the industry, we believe that local players will meet the minimum capital required by the Bank of Ghana (BoG). Mergers and acquisitions are therefore not being considered at the moment,” Daniel Sackey, Managing Director of Ecobank, said.
Speaking to the media after the bank’s Annual General Meeting, Mr. Sackey noted that the bank is committed to growing the business organically in the medium- to long-term with the ultimate aim of ensuring financial inclusion throughout the continent.
The increase in the current minimum capital of GH₵120,000 by 233 percent to GH¢400million, seeks to strengthen the banking sector, reduce the number of bankers, and build a resilient industry that is capable of supporting the country’s ambitious growth agenda.
All banks have submitted their recapitalisation plans to the central bank, but the indigenous players – banks with 100 percent local ownership – recently petitioned the Jubilee House to intervene and extend the deadline.
In August 2017, the Bank of Ghana allowed the purchase and assumption of Capital and UT Banks, two local banks, by GCB Bank. Six months later, uniBank – another local bank – was placed under the administration of KPMG.
The central bank has also recently appointed an advisor to guide Sovereign Bank, another local bank, onto to a healthy footing due to governance and capitalisation challenges.
The remaining local banks, some 17 of them, have made no secret of the fact that they are struggling to raise the GH₵400,000 by the December deadline.
Ecobank meets stated capital
Shareholders of Ecobank Ghana have approved a special resolution to transfer a total of GH¢190million from income surplus or retained earnings to stated capital – a move that sees the bank meeting the Bank of Ghana’s GH¢400million new capital requirement.
In doing so, Ecobank joins a growing number of banks that are meeting the central bank’s guideline and positioning themselves as financial institutions that have the capacity to spur the economic growth agenda of the government.
Due to the bank’s commitment to meeting the stated capital, its shareholders who regularly benefitted from dividends will not be receiving any cash payments but will be compensated with a bonus share for every 10 shares held.
Due to the challenging banking environment, the bank’s performance in 2017 saw a marginal drop compared to its 2017 performance in indicators such as profits, revenues, and equity.
It recorded a revenue of GH¢1.1billion in 2017, a 7 percent reduction in the 2017 figure. “The slight drop in revenue was as a result of the declining interest rate environment, driven in turn by the successful implementation of the Treasury Single Account (TSA) impacting our net interest income,” Mr. Sackey said.
The bank’s accelerated recognition of impairment charges of GH¢174million related mainly to legacy loans in the oil and gas sector due to continuing delays in the resolution of the legacy BDC debt.
This resulted in a profit after tax of GH¢358million in 2017 compared with GH¢463million recorded in 2016.
The impact was felt when earnings per share of GH¢0.87 were recorded, compared to GH¢1.12 in 2016. Average return on equity thus fell to 25 percent from 35 percent in 2016.
The issuance of bonds to cover loans extended to state-owned entities in the energy sector resulted in the reclassification of loans to the tune of the GH¢679million; and together with tightening of the credit screening process, the bank’s customer loans dropped by 23 percent from GH¢3.48billion in 2016 to GH¢2.68billion in 2017.
Despite the adverse impact on top-line performance, the bank maintained its market leadership in customer deposits with a growth of 21 percent.