The oldest bank in the world still in existence is Banca Monte dei Paschi di Siena, headquartered in Siena, Italy, which has been operating continuously since 1472 and has not been merged with any bank since inception.
In Ghana, the Bank of the British West Africa and Barclays Banks (a merger of the Anglo-Egyptian Bank and the National Bank of South Africa) were the only banks operating in the Gold Coast between 1920 and 1950 or thereabout until the Ghana Commercial Bank was created in 1953 as the first indigenous bank meant to introduce competition and reduce control of the financial industry by the foreign banks.
However soon after gaining independence in 1957, the Bank of Ghana was established to take control over the management of the country’s currency. By the mid 70’s, National Investment Bank, Agricultural Development Bank, Bank for Housing and Construction, Merchant Bank, the Social Security Bank and others have also emerged providing essential services required by Ghanaians in all parts of the country.
Causes of Banking Crises
Banks can fail for dissimilar reasons. For example, a bank run, which happens when many people try to withdraw their deposits at the same time, leading to a bank panic which can result in a total banking crisis. This merely means that, the free capital in the banking system is withdrawn and can lead to total collapse.
Several academic studies have emerged to examine merger related gains in banking and these studies have adopted one of the two following competing approaches. The first approach relates to evaluation of the long- term performance resulting from mergers by analysing the accounting information such as return on assets, operating costs and efficiency ratios. A merger is expected to generate improved performance if the change in accounting-based performance is superior to the changes in the performance of comparable banks that were not involved in merger activity.
Internationally, voluntary mergers and acquisitions have become a major way of corporate restructuring and the financial services industry has also experienced merger waves leading to the emergence of very large banks and financial institutions. The key driving force for merger activity is severe competition among firms of the same industry which puts focus on economies of scale, cost efficiency, and profitability.
The other influence behind bank mergers is the “too big to fail” belief followed by the authorities in charge of the financial sector. In some European countries like Germany, weak banks were forcefully merged to avoid the problem of financial distress arising out of bad loans and erosion of capital funds in the 2007-2008 global financial meltdowns. Recently though, Other than Deutsche, Commerzbank and twenty years after the euro came into existence, Europe’s leaders were worried, there is no such thing as a European bank. Even the continent’s largest lenders are just national banks pretending, and sometimes succeeding, at throwing their weight around the region.
The German government still holds a 15 percent stake after bailing it out during the global financial crisis, giving it an important voice. The fear is that, if an international rival snapped Commerzbank up, that would increase competition for Deutsche on its home turf. But no major European financial institution has emerged with branches from Lisbon to Leipzig and Rome to Rotterdam that is able to move liquidity and capital around the Eurozone and finance the European economy in its geographical diversity.
Examples of consolidation of banks
Absa now owners of Barclays Africa, was founded in 1991 through the merger of financial service providers United Bank (South Africa), the Allied Bank (South Africa), the Volkskas Bank Group and certain interests of the Sage Group. The following year, Absa acquired the entire shareholding of the Bankorp Group which included Trustbank, Senbank and Bankfin, thereby extending its asset base further. In the early years of this union, each bank operated under its own name. In 1998, they were fused into one single brand. A year later, Absa adopted a new corporate identity and the name was changed into Absa Group Limited. To cement the union Absa in 1998, decided to adopt a single brand and provide an array of financial services offering “simple, uncomplicated banking relationships, value for money, stability, convenience and superior customer service”.
In May 2005, Barclays Bank of the United Kingdom purchased 56.4% stake in Absa as part of its drive to expand its global product and international retail and commercial banking businesses to untapped markets outside the UK. Absa’s head offices is located in Johannesburg, South Africa, and since August, 2013, has had majority stakes in banks in Botswana, Ghana, Kenya, Mauritius, Mozambique, Seychelles, South Africa, Tanzania (Barclays Bank Tanzania and National Bank of Commerce), Uganda and Zambia
France, Italy and Germany
BNP Paribas is a French international banking group. It is the world’s 8th largest bank by total assets, and currently operates with a presence in 77 countries. It was formed through the merger of Banque Nationale de Paris (BNP) and Paribas in 2000, but has a corporate identity stretching back to its first foundation in 1848 as a national bank. It is one of three major international French banks, along with Société Générale and Le Crédit Lyonnais. Success of Bank mergers in other countries such as Italy is 90%, 80% success in France, and 70% in Germany.
In 2009, the Central Bank of Nigeria conducted a deep assessment of the country’s banks. The exercise exposed large-scale fraud committed by a number of CEOs.
To save the banking system from collapse, the Central Bank took over a number of institutions and spent billions saving others. In addition, criminal charges were laid against five CEOs for offences which included fraud, market manipulation, concealment and grant of credit facilities without adequate security.
What the banking Act says about merger, consolidation and withdrawal of licences
The Bank of Ghana for example, revoked the licence of Heritage Bank, under section 16 (1) (a) (7) and (8) of Act 930, and appointed a receiver under section 123 of the Act where it is satisfied that an applicant provided false, misleading or inaccurate information in connection with the application for a licence or suppressed material information, and may in cases of emergency, or in the public interest revoke the licence of the bank without notice. Further, sections 9 and 12 of Act 930 authorises the BoG to revoke a licence if it considers that significant shareholders of a bank not suitable.
Banks ignoring BoG directives
Prior to taking regulatory steps to instil discipline in the financial sector which led to the closure of Capital and UT banks in September 2017, The BoG had given the warning signals and in fact reported on several of its publications that some banks have flouted it regulations and refused to take advice to correct costly mistakes. In May 2015, the Bank of Ghana (BoG) served notice to financial institutions of planned activities to cleanse the sector of errant firms that have failed to abide by regulations in the banking sector, in a clear sign that, the authorities had adopted a hands-on approach.
Then Deputy Governor of the Bank of Ghana, Dr. Abdul-Nashiru Issahaku, who later became governor in an interview with B&FT said, “the central bank will for a start expand its enforcement exercise to clamp down on the activities of unauthorised financial institutions, as well as those that have failed to follow its licencing requirements”.
Objectives of the consolidation
The Consolidated Bank Ghana Limited (CBG) came into existence on 1st August 2018, when the Bank of Ghana revoked the licences of uniBank, The Royal Bank, The Construction Bank, Sovereign Bank, Beige Bank, later the Premium and Heritage to form it. The BoG (Regulator) took the step to form the CBG because the banks were declared deeply insolvent, meaning that their liabilities exceeded their assets, putting them in a position not to be able to meet their obligations as and when they fell due. The BoG, riding on the back of the Banks and Specialized Deposit-Taking Institutions ACT 930, 2016, took the necessary regulatory action to consolidate the deeply insolvent banks. The objectives of the BoG are repairing and restructuring the financial sector to ensure banks are well capitalized and strong to support the fast growing and transforming Ghanaian economy and to ensure that domestically-owned banks are further strengthened to participate actively in the economic and social transformation agenda, protect customer deposit, prevent the Ghanaian economy from collapsing by providing financial stability and strengthening indigenous banks.
The consolidation may also seek to mobilize the savings of the people to a large extent and utilize them for productive purposes in accordance with national priorities.
To achieve this Objective the Bank of Ghana in its May 2018 Banking Sector Report said it is determined to pursue sound monetary policies aimed at creating an enabling environment for sustainable economic growth and will undertake to promote and maintain a sound financial sector and payment systems through effective regulation and supervision which to be fair is on course.
Therefore, the consolidation is to organize the banking system for a larger social purpose and subject the financial sector to public regulation and to meet the legitimate credit needs of private and public sector industry, trade, big and small ticket transactions. The creation and operation of such a large national bank is to meet the needs of the productive sector of the economy; small scale industry, farmers, entrepreneurs and professional groups also to actively foster the growth of progressive entrepreneurs.
The influence of such national banks cannot be underrated, in that; they tend to reduce the use of bank funds for unproductive purposes. If operated well, under strict governance, CBG has the potential to expand the branch network of indigenous banks by providing financial inclusion in all parts of the country. It can also reduce regional imbalances in banking services and to improve economic development at all levels.
In furtherance of its strict governance and supervisory regime, the regulator has introduced several control measures to maintain orderliness, limit fraud in acquiring licenses and to address vulnerabilities and legacy problems in the banking sector, to restore the stability and resilience of the financial system.
For example, portions of section 20 of the Banking Business- Corporate Governance Directive 2018, is expected to address individual and company regulatory breaches such actions that can lead to crises as, Non-Performing Loans, Capital Adequacy Ratio (CAR), capital deficits, high appetite and over estimation of investments, severe capital impairment, insolvency and most regulatory breaches, should they arise in the future.
The new law reads among others, “A person, before assuming office as director or key management personnel of a regulated financial institution, to declare to the board of directors of that regulated financial institution and the Bank of Ghana;
- a) The professional interests of that person or the office that person holds as manager, director, trustee or by any other designation; and
- b) the investment or business interests of that person in a firm, company or institution as a significant shareholder, director, partner, proprietor or guarantor, with a view to prevent a conflict of interest with the duties or interests of that person as a director, or key management personnel of the regulated financial institution”.
Similarly, the board of a financial institution shall ensure that transactions with related parties (including internal group transactions) are reviewed.
With the cleaning up accomplished, the regulator expressed confidence that the banking sector had become stronger.
Neglect of priority sectors
The scandals surrounding Ghanaian banking which have floated to the top of every news bulletin in recent months are well known and documented. As a result, some banks have been taken over and others merged into one. All of this has created a lack of consumer trust and confidence in banks, a situation seeing gradual change now according to new BoG reports.
One of the main charges levelled against most individual bank owners is that, they advance loans to themselves and neglect priority sectors such as agriculture and small-scale industries. This goes to affect planned government priorities throughout the country because it diverts funds through less important projects. Most of these owners also divert huge profits into self-owned businesses and to family and cronies.
It is alleged that, activities of these private owners lead to concentration of economic power in the hands of a few powerful business owners to the exclusion of rural folks. Eventually funds for planned government priorities are redirected to their businesses to benefit themselves and families creating regional imbalances in terms of fair regional distribution of development projects. Somehow these banks developed appetite for high profits enables them to take high risks ventures, thereby disregarding their own internal governance, risk and BoG regulations on the financial sector.
Deterioration in quality customer services is a common feature among national banks, where tellers report late, Managers do not report regularly, neglecting important deadlines and affecting total work out put. Attempts to tackle these laid-back approaches to work often leads to heightened unionised activities which misinterprets it as victimization on the part of top management and supervisors. Political interferences are common thereby affecting strong work attitude. Social banking inadequacies arise because of poor supervision and proper management approach to devising means to handle such issues and general large-scale irregularities. Favouritism is a key issue to the extent that it even affects the granting of loans to qualified customers. Bad loan portfolios (NPLs) are common in such banks, and unless new measures are put in place to check risks in general, this problem might persist.
Banking Sector Profitability- May 2019 Banking Sector Report
The 24 banks, currently operating in the country, registered an after-tax profit of GH¢1.1 billion, representing a year-on-year growth of 38.9 percent compared with 5.8 percent growth for the same period last year. The profit margin is a remarkable growth, after the clean-up of the banking industry.
Majority of the profits were recorded largely by the tier-one and tier-two banks. They include Ecobank Ghana, GCB Bank, Barclays Bank, Zenith Bank, Stanbic Bank, Stanchart, Cal Bank and UBA. According to the May 2019 Banking Sector Report, the higher growth in net profit was underpinned by higher growth of net interest income during the review period. Net interest income grew by 21.6 percent because of higher interest income from investments and lower interest expenses from reduced borrowings on the back of increased deposits mobilized.
And to give an important and credible support to the regulator’s effort to restructure and build a strong and resilient financial sector, Consolidated Bank Ghana (CBG) reported, it has moved from a negative position to post profit, in a very challenging banking environment in less than a year as a result of prudent management practices. The Bank’s 2019 second quarter results show a profit after tax of ¢41.1 million, representing about 280 percent improvement on performance over the 2018 financial results. The second quarter performance also indicates that Net Interest Income was up by about 83% from about ¢122 million at the end of 2018 to ¢223.8 million in the second quarter of 2019. Total assets of the bank went up from ¢7.5 billion to ¢8.3 billion, representing a growth of 11%.
The Consolidated Bank Ghana Ltd (CBG), has the extra potential to inspire deposit growth by its simple presence in all regional capitals including the new six regions. CBG also has the ability with already qualified professional staff and fresh capital injection to extend credit to priority sector lending, spread banking services and decrease regional disparities. The establishment of the CBG is to protect depositors fund, reduce undesirable activities in the banking sector, minimize and manage NPLs and increase efficiency as a result of the consolidation through better management. The vision of the current management is critical in guiding the bank to successes that will be admired by financial sector watchers.
The writer is a Broadcast Journalist/PR practitioner.