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The Bank of Ghana has made public what it describes as the “key findings” of KPMG, the Official Administrator of local bank, uniBank, which was recently merged with four other struggling local banks by the central bank, to form The Consolidated Bank Ghana Limited.
uniBank has been under KPMG’s administration since March after the central bank intervened to save it from collapse.
At a press conference on Wednesday, 1 August 2018, Governor Dr Ernest Addison presented the following as the findings made by KPMG on uniBank’s books.
It would be recalled that on 20th March 2018, the Bank of Ghana appointed KPMG as Official Administrator (OA) for uniBank to help ascertain the true financial condition of the bank, protect depositors’ funds held by the bank, and explore how the bank could be returned to viability within a period of no later than six months.
In line with the requirements of Act 930, KPMG submitted an Inventory of Assets and Liabilities of uniBank (Ghana) Limited on 20th April 2018 (30-day report), and a report on the Financial Conditions and Future Prospects of uniBank (Ghana) Limited on 20th June 2018 (90-day report).
KPMG’s reports confirmed, based on a detailed review and validation of the financial condition of uniBank that the bank was balance sheet insolvent at the time of their appointment as official administrator and remains so.
As official administrator, KPMG made efforts to ascertain the assets and liabilities of the bank and evaluated options for turning around the bank’s fortunes. KPMG, however, found that the bank’s operations are not sustainable.
Among other things, the bank’s interest income and other sources of income are insufficient to cover the associated cost of funds of underlying borrowings and liabilities, as well as overheads of about GH¢0.31 billion per annum.
A significant portion of the bank’s loan book which forms the largest component of the bank’s assets, is non-performing. The earning capacity of the bank continues to deteriorate.
In addition, the bank’s governance and internal control environments have been assessed as weak, with significant deficiencies in credit underwriting and loan approval process, compliance and reporting.
Key findings from KPMG’s reports indicated serious corporate governance, risk management, compliance and management flaws, as well as unlawful transactions involving shareholders, related parties, and connected parties.
• uniBank had given out amounts totaling GH¢1.6 billion to shareholders and related parties in the form of loans and advances without due process and in breach of relevant provisions of Act 930.
In addition, these shareholders and related parties had also been given amounts totaling GH¢3.7 billion which were neither granted through the normal credit delivery process nor reported as part of the bank’s loan portfolio.
They were also not secured with collateral, and attracted no interest income for uniBank. Altogether, shareholders and related parties of uniBank had taken out an amount of GH¢5.3 billion, constituting 75 per cent of total assets of the bank;
• Out of total customer deposits of GH¢4.3 billion, GH¢2.3 billion was not disclosed to the Bank of Ghana. Loans and advances to customers were also overstated by GH¢1.3 billion in prudential returns to the Bank of Ghana;
• Over 89% of uniBank’s loans and advances book of GH¢3.74 billion as of 31st May 2018 was classified as non-performing, in addition to amounts totalingGH¢3.7 billion given out to shareholders and related parties which were not reported as part of the bank’s loan portfolio;
• After making allowances for impairments to recognise the deterioration in the quality of uniBank’s assets and other requirements under Bank of Ghana’s capital adequacy framework, uniBank was balance sheet insolvent with negative shareholders’ funds of GH¢6.78 billion as at 31 May 2018 (representing assets of GH¢ 2.38 billion less liabilities of GH¢9.15 billion);
• The bank therefore has a capital deficit of GH¢7.4 billion, compared to the regulatory minimum of GH¢ 400 million;
• After making adjustments to uniBank’s balance sheet to offset outstanding debts totaling GH¢ 428,817,961 owed it by Government contractors (backed by Interim Payment Certificates issued by the Government), the bank’s liabilities (including an amount of GH¢ 3.04 billion owed to the Bank of Ghana) remain significantly more than its assets, and is therefore insolvent.
To summarise, as of 31st May 2018, uniBank was insolvent, with a capital deficit of GH¢7.4 billion (compared to the regulatory minimum of GH¢ 400 million), and a capital adequacy ratio (CAR) of negative 74.65% (compared to the regulatory minimum of 10%).
uniBank is also cash-flow insolvent, given that a significant portion of the itsassets are locked up in interest-free loans and other advances to its shareholders and related parties.
As a result of the financial condition of the bank, it has continued to survive largely on liquidity support to meet maturing liabilities including operating expenses. As of June 2018, total liquidity support that has been provided to uniBank was GH3.1 billion, including approximately GH¢ 927.2 million provided since the appointment of KPMG in March 2018. KPMG estimates that uniBank will need additional liquidity support estimated at GH¢3.0 billion through the end of 2018 to help meet overdue and maturing obligations and operating expenses.
Further reliance on liquidity support at this stage is unsustainable, and the bank’s continued inability to honour outstanding obligations to depositors including financial institutions, public sector institutions, and others, continues to fuel liquidity pressures in the financial system.
uniBank’s shareholders and related parties have admitted to acquiring several real estate properties in their own names using the funds they took from the bank under questionable circumstances. Promises by these shareholders and related parties to refund monies by mid-July 2018 and legally transfer title to assets acquired back to uniBank have failed to materialise.
Based on the Bank of Ghana’s review of KPMG’s assessment of the financial condition of uniBank, the Bank of Ghana has concluded that uniBank is insolvent and has no reasonable prospect of rehabilitation, or a reasonably credible path to viability.
In arriving at this conclusion, the Bank of Ghana has carefully considered the options provided under Act 930 to rehabilitate a bank under official administration. The Bank of Ghana finds that, in the interest of promoting financial stability, protecting the interests of depositors and lenders, minimising the costs to the tax payer, and restoring integrity in the financial sector, the only reasonable option is to fully resolve the bank by revoking its banking licence and winding down its affairs through a receiver appointed by the Bank of Ghana.
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