UT, Capital collapse could undo local banks’ efforts – Banker

An investment banker has said the recent failure of the two indigenous banks, UT and Capital Banks, puts a dent on the efforts of other local banks seeking to raise funds from investors to meet the Bank of Ghana’s GHS400 million capital requirement.

The Head of Investment Banking at Stanbic Bank Ghana, Randolph Rodrigues, said the collapse of the two banks which were subsequently taken over by GCB Bank, casts doubts on the ability of Ghanaian banks although there are equally high performing ones in the industry.

Speaking in an interview with the B&FT, Mr. Rodrigues said the crowded nature of the banking industry will, first of all, make it tough for banks that need to convince investors to meet the GHS400 million capital requirement, a situation which will not help the local banks’ course if they are not capable of meeting the requirement by themselves.

“It’s not easy when you think about it. Generally, it is not easy for any bank that needs to raise money to meet the central bank’s requirement. The banking sector, right now, is very crowded, which means that there is a lot of competition; there’s no easy money to be made.

The banks that have stronger balance sheets or capabilities are going to meet the requirement and any bank that does not have the capability has to do a stronger job of selling themselves as the option that makes sense.

Unfortunately, a situation like UT, in particular, is quite difficult for the market, because there were external investors in UT and they are likely to lose some or all of their monies,” said Mr. Rodrigues, whose bank – Stanbic –  is in line to meet the central bank’s requirement.

The central bank, last month, increased the minimum capital required by banks by more than 230 percent from the previous GHS120 million benchmark, giving banks up to end of next year to fulfill it.

But with the demise of once-vibrant UT Bank and Capital Bank, market watchers are expressing worry that local banks would struggle to make the cut.

According to Mr. Rodrigues, “So, as an investor, whether foreign or local, when I look at the next indigenous bank, what is to make me believe that this is the one that will survive or thrive?

But we have to also keep in mind that whilst there was UT, there is also Cal Bank [a local bank] which is performing tremendously, as well as Fidelity Bank [local bank].

People are going to have to do a strong job of selling themselves. But of course, we will need people who can convince investors that they are worth investing in, otherwise they are not worth leaving your money with,” Mr. Rodrigues added.

Strength of local banks B&FT’s analysis of current paid-up capital and income surpluses of all 34 universal banks operating in the country shows that apart from GCB, which has a total paid-up capital of GH¢703million, GH¢100million being paid-up capital and GH¢603million in income surplus as at July 2017, local banks with capital shortfall will have to find millions to recapitalise.

All other indigenous banks, 17 in all, except uniBank, have a capital shortfall of between GH¢50million and GH¢320million that must be remedied by the December 31, 2018 deadline or risk being classified as an undercapitalised bank - a tag that may lead to the loss of significant business and ultimately their demise.

uniBank’s task at recapitalising is fairly simple, as it has a paid-up capital of GH¢310million and an income surplus of some GH¢52million…leaving it just about GH¢38million shy of the new minimum capital requirement of GH¢400million.