GHS400m capital: These banks won't make it - Toma Imihere

Most of the recently licensed local banks operating in Ghana will struggle to meet the Central Bank’s GHS400 million minimum capital requirement, and so would have to resort to the stock market, additional investment or mergers and acquisitions to stay afloat, financial analyst, Toma Imihere, has said.

The Bank of Ghana has given all the 33 universal banks up the end of December 2018 to recapitalise from GHS120 million to GHS400 million.

The recapitalisation is expected to shore up Ghana’s economy with GHS9 billion if all the banks are able to meet it.

Speaking on Class91.3FM’s Executive Breakfast Show on Thursday, 14 September, Mr. Imihere said virtually all the transnational banks will easily fall on their parent groups to meet the requirement while a few local banks with good financial standing will also make it.

In his estimation, a lot of the causalities will be new local banks.

“First of all, we have somewhere between 10 and 12 banks that are already there – the GHS400 million – when you take out their shareholding funds, take out their statutory reserves and their credit risk reserves, when you take those ones out, either they are already above the GHS400 million or they are so close that all they need to do is just capitalise their profits for the 2017 financial year and they will get there.

“Now you have another nine that because of their foreign ownership, they belong to very big banking groups, banks like Société Générale that have the pedigree, the financial backing from their parents to get there,” he explained.

Mr. Imihere, however, pointed out that: “… It is not compulsory that the parents will agree to put up the money. The parents are going to look at the returns they are getting and the returns they are expected to get if they put up the money. If they decide this child is worth it, they can afford to do it.

“What it means is that we still have about 12 to 15 banks or so whose situation is going to be up in the air. Unfortunately, most of them are relatively young local banks.”

He singled out three local banks which he said will definitely make it among the lot. “The local banks that will certainly get there are uniBank, Fidelity Bank, Cal Bank, those ones, they don’t have any problem,” he added.

For the banks that are unlikely to make it, Mr. Imihere proposed a number of options.

“One is that they can go to the stock market. After two years of a depressed stock market – during the first half of this year, the GSE financial index rose by 15% – if you analyse that and assume that the trend will continue, this year you are talking about a 30% rise which, considering returns currently in Ghana, 30% is good returns but that’s an average. Of course, it differs seriously from bank to bank but right now banking stocks put on the stock market are quite attractive. That is one option.

“Another option is to go look for new shareholders, especially these new banks whose shareholders have just put up GHS120 million, it’s going to be a tall order expecting them to go and bring another GHS280 million or so.

Don’t forget these guys might have the money but they are also looking at how diversified their investment portfolios are; you don’t put all your eggs in one basket. … Of course, you can go and look for other investors by private placement; there are still a lot of people who want to get into banking. … That is a shareholders issue.

“The last thing, of course, is mergers and acquisitions. I think that the BoG deliberately licensed several new local banks in order to give them the opportunity to merge to retain their local identity ahead of the deadline,” he said.