Fresh capital eludes bank as investors gauge regulator’s mood

Banks looking for fresh capital to meet the GH¢400million stated capital could be in for tougher times as investors, both local and foreign, recoil from the market on account of recent attempts by the central bank to sanitise the banking industry.

According to Dr. Sam Mensah, Executive Chairman of the SEM Group – an investment banking firm: “The best time to go to the market is when confidence is high and investors are in a buoyant and bullish mood, but I do not believe that is the case with regard to the banking sector currently.”

Dr Mensah, who is advising a couple of banks on their capital raising efforts, goes on to say: “Enough has happened in the last few months to undermine confidence in the financial sector, and investors are probably worried”.

In a bid to sanitise the banking industry, the Bank of Ghana liquidated the UT and Capital Banks, placed uniBank under the administration of auditing firm KPMG, and appointed an advisor to steer Sovereign Bank back to health.

Last week, it also announced that the institutions holding a majority stake in the Agricultural Development Bank (ADB) – Belstar Capital, Starmount Development Company, SIC Financial Services Limited and EDC Investments – are not fit and proper, and therefore revoked their 51 percent stake in the Agric-focused bank.

While these actions may ultimately result in a stronger banking sector, Dr. Mensah believes they have doused investor confidence in the banking sector currently.

“I am not sure there is that much investor appetite for bank shares at this point. Some of them are taking the alternate route of merging, and maybe that is a more viable option at this point. When you merge, essentially you are adding up on your balance sheet and you may not need additional capital,” he said.

Asked if he has failed to convince either local or foreign investors to invest in banks, he said: “We are still working; we are working with one or two banks to see whether we can help them to recapitalise. Out of loyalty to your clients, you still have to do the best you can to meet their needs; and that is what we are trying to do for the banks we are working with”.

Four banks – Access Bank, the Agricultural Development Bank, Republic Bank, and Societe Generale – are seeking a total of GH¢1.19billion from shareholders to be able to meet the new minimum capital.

Access Bank, with a stated capital of GH¢144million, is seeking to raise a total of GH¢450million (GH¢300million rights issue and GH¢150million private placement).

So far, it has raised GH¢221million from a Renounceable Rights Issue, which ended 20 days ago, representing 73.73 percent of the maximum target of GH¢300million.

Banks which have so far announced they’ve met their stated capital – GCB Bank, Standard Chartered, Zenith Bank, others – are those that have already built up enough income surplus and been cleared by the Central Bank to transfer the capital from income surplus to stated capital.

Due to a dip in confidence, however, banks that are yet to meet the stated capital have made no announcement yet; and with four months to December, analysts fear quite a lot of these will find it difficult to meet the GH¢400million target.

“The banks that are relying on the market to finance or recapitalise are taking a big chance, and it is quite possible they may not get the capital they are looking for,” added Dr. Mensah, who has also served as the chair of the stock exchange’s council.

BoG on the right track

Even though investors are worried, Dr. Mensah noted that the central bank’s moves are good for the market. “The Bank of Ghana is putting its foot down and enforcing its rules to help sanitise the financial sector,” he said.

He, however, expressed surprise at why it took the BoG so long to catch up with “this obvious breach of the rules”, in reference to BoG’s statement that uniBank took a short-term facility from the regulator and loaned it to Belstar for the acquisition of shares in ADB.

It is quite disturbing, he said, that the management of a bank would actually undertake a transaction that is obviously against the Bank of Ghana’s rules.

“You do not fund the acquisition of shares with the central bank’s short-term liquidity support; it is a mismatch. Putting central bank rules aside, it is just an imprudent use of liquidity resources,” he added.