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New capital requirement could force 15 banks to go down

New capital requirement could force 15 banks to go down Featured

Fifteen banks in the country may struggle to meet the new capital levels introduced by the Bank of Ghana. This could force them to lose their license by January 1, 2019, unless they are able to raise the capital or

merge.

JoyBusiness analysis showed that currently, only 10 banks can meet the new capital requirement of GHc400million.

The scenarios indicate that local banks could be the hardest hit, looking at the current economic environment, and if they want to depend on their existing shareholders to raise the capital.

Some may want to go the Initial Public Offering route, which could take about six months and even for that, they are not assured of it being successful.

The challenge here is that, unless they are prepared to give away part of the bank, then obviously they would be going down.

JOYBUSINESS can also confirm that one of the local banks is in talks with another foreign bank to be acquired.

President of the Association of Bankers, Alhassan Andani, is also worried about banks that recently started operations and lower tier banks.

He said: “There are new banks that have come in and shareholders have come up with what they think they can afford and that might be an immediate stress.

“There would be some bit of difficulty on newer banks and lower tier banks but [the] shareholders if they still recognize and see benefit in the niche market that they’ve set up these banks to play in, [they] will step in,” he said.

The new increase in the minimum capital requirements in the country has been described as the biggest in recent times.

Why the need to increase the capital requirements

According to sources close to the Bank of Ghana, the regulator was forced to increase the capital due to some challenges in the industry like low working capital and less money available for lending.

A development that has resulted in most of the banks turning to the Bank of Ghana every day for waivers to grant credits beyond the regulatory limits.

Also, it is believed that, the economy is expanding and it must be crucial to improve the financial position of these banks so that they can finance some big projects in the oil sector, government industrialization like the One District One Factory and the Railway Projects.

If all the banks increase their capital levels from the current GH₵120million to GH₵400million that could bring almost GH₵9billion into the economy in one year.

Obviously, these funds have to go for some prudent returns to be made. It is also believed that this could help deal with rising loan defaults.

There is an argument that the development could attract more investments because those big time investors want to deal with a well-capitalized banking sector.

Sharing his views with JoyBusiness on the real impact of this development on the economy, Economist, Professor Godfred Bokpin said: “When you look at the demand for loanable funds in this country and the fact that the banks are unable to meet the loan requests and all of that, yes there is economic reasons [and] there is every reason for this move.”

“What it also means is that banks would now be encouraged especially with the treasury single account also they will now have to compliment this capital base by mobilizing more deposits from the public in order to do proper banking intermediation and make sure that they channel these funds into productive assets that enables them to generate the much-needed returns and also cover their operational cost.”

Meanwhile, some local banks insist they can meet the new capital requirement of GHc400million.

Additional Info

  • Origin: myjoy/GhAgent