Business News Wed, 24 Aug 2016

Banks must consider mergers and acquisitions - CIB

The President of the Chartered Institute of Bankers (CIB), Clifford Mettle has urged banks to strongly consider mergers and acquisitions as a key option to meet the imminent raise in the minimum capital requirement of the central bank.

The remarks follow proposal by the Bank of Ghana to up the minimum capital requirement of banks in the country from GH¢120million to about GH¢300million in a bid to enhance the consolidation efforts of banks to undertake big ticket transactions.

In an interview with the B&FT, Mr. Mettle posited that the proposal of the central bank will provide banks who cannot meet the new capital requirement a platform to consider mergers and acquisition in order to remain in business.

“The stage is set now for mergers, acquisitions and consolidations for the banks. If you are a bank and you think strongly that you will not be in a position to raise the capital to meet the regulatory requirement, then obviously you will be compelled to enter into any of these arrangements in order to continue operating,” he said.

Even though he admitted some banks will have their own challenges to deal with if the central bank’s capital requirement proposal is actualized, he downplayed concerns expressed by some in the industry that it will impact negatively on the economy.

“The little difficulty that I have personally is that there are some banks which probably want to remain what we call boutique banks which focuses on a certain niche of the market.

“Therefore, with the amount of capital that they have they will be able to support the sectors they have identified as their niche. So if you compel them to raise their capital from GH¢120m to GH¢300m then it will certainly distort their strategy in that direction.

“But in all it will be very good for the country as a whole. It will add to growth of the banks and the economy in general. I don’t think it will impact negatively on the banking industry.”

Meanwhile, the Head of Banking Supervision in charge of other financial institutions of the Bank of Ghana, Raymond Amanfo, has told the B&FT that the central bank has not confirmed any decision to increase the capital requirement but the bank is just in the process of conducting its periodic review of its policies which includes the capital requirement.

“The point is that periodically we review our policies which include capital requirements and the like, so maybe, that is why people are speculating. You know the new banking law has just been passed and so we have to start a whole process as to how to implement it. But we have not said any such thing,” he said.

However, Mr. Mettle argues that the current situation the central bank faces with some banks makes it reasonable for the capital requirement to be increased.

“We need to consider the reason that may be behind the Bank of Ghana’s decision to increase the capital requirement. There are a number of times banks will have to go the central bank for a waiver before they are able to undertake what we call big ticket projects.

“So with the number of requests in mind, the BoG has realized that the balance sheet of some banks are not adequate enough to support the big ticket transactions and therefore, they think is about time the capital requirement of banks is increased to address this situation,” Mr. Mettle said.

Source: B&FT