GCB – Sell It or Save It?

Almost every Ghanaian knows about Ghana Commercial Bank (GCB) - established in May 1953 for Ghanaian entrepreneurs, is now the largest indigenous Bank with 130 branches nationwide; represented in all the 10 regions and 110 districts of the nation in a bid to make banking accessible to all Ghanaians. The question of what the government should do with GCB (i.e. sell it or save it) has dogged the reading general public for quite sometime. Why should the government get rid of GCB? People in favor of this option may cite mismanagement, too much government interference, use of archaic I/T services, etc. On the other hand, those in support of “Save GCB” may cite sentimental, patriotic or “let’s try” reasons.

As we know, GCB (http://www.gcb.com.gh/) is not the oldest (existing) commercial bank in Ghana. Two British banks namely Standard Chartered Bank (SCB) and Barclays Bank Ghana Ltd., for obvious reasons were formed ahead of GCB. Standard Chartered Bank Ghana Limited has been in operation since 1896, when it was known as the Bank of British West Africa. The Bank is 80% owned by Standard Chartered PLC, and the remainder of the stock is owned locally and traded on the Ghana Stock Exchange (GSE). SCB (http://www.standardchartered.com/gh/) is the oldest bank in Ghana, and ranked first of all the banks with a 35% market share. Barclays Bank of Ghana (BBG) is a wholly owned subsidiary of Barclays Bank PLC. The remainder of Barclays Bank of Ghana shares are held by the Government of Ghana. BBG (http://www.barclays.com/africa/security/cust/ghana.htm) was originally established in 1917, incorporated in Ghana in 1971, and is supervised by the Bank of Ghana under the Banking Acts of 1970 and 1979 and the new Banking Law of 1989

So you have it, the Government of Ghana owns a slice of BBG, perhaps a piece of SCB, and a whopping 46% of GCB. Why sell the goose that continues to lay golden eggs for you? The “let’s try it” people feel GCB’s low productivity (compared to other commercial banks) can be corrected by replacing current archaic system with a more productive and efficient I/T system. Assuming this notion is true, why did the government not implement SCB and BBG successes at GCB all these years? Given its 46% ownership, it is rather difficult for the government to not interject political ingots in GCB’s business whether or not these inputs actually do help GCB’s bottom line. Given GCB’s 130 branches throughout Ghana, one may infer that these political or managerial “interruptions” may have prevented GCB from at least equaling its 2 foreign rivals.

One wonders if it’s because of the government’s 46% lion share of GCB that makes the International Monetary Fund (IMF) and World Bank (WB) so determined to push for the much debated divestiture of GCB. People who opt for “Sell GCB” believe that the government has no business in Business Operations and should leave it in private hands. Let’s re-visit people’s views when the government proposed to divest its 46% shares in GCB to a strategic investor. Many people shared their disagreements that without GCB, most small businesses would have collapsed; GCB has single handedly led Ghana’s economic growth since GCB’s formation. Having listened to these sentiments, Kufour’s government relented and placed the sale on HOLD, not cancelled!

On December 19, 2003, Mrs. Obeng Ansong (Managing Director of GCB) announced that GCB “… was committed to the development of local businesses to enhance the country's economic growth … would continue to support the export sector with various lines of credit for importation of capital goods … would use its maturity and in-depth local knowledge and expertise to nurture small companies into giants ….”

It appears the government has weathered IMF/WB’s pressure to divest its 46% GCB shares for now. Can this delay hold water, in light of the country’s HIPC status, recent VALCO take over, etc.? Whether or not GCB should be sold or saved, the fundamental issue is the modernization of I/T system throughout GCB’s 130 branches. Secondly, the government must leave GCB’s management in the hands of bank professionals just as it allows (without a choice) SCB and BBG to manage their own affairs. Because the proposed sale was placed on hold, not cancelled, it will not surprise anyone if the GCB divestiture is placed back on the hopper anytime from now. Will IMF/WB ease up “when” this 46% ownership is trimmed to say 15%?

Let’s suppose that the government revisits the GCB issue. Also assume that as a government that cares and listens to public opinion on public issues, the NPP government decides to sell its stake to Ghanaians. To accommodate the Ghanaian strategic investor(s), the best option to take may be to sell the shares in 2-3 phases:

1. Phase I – Sell 15% to provide required capital for upgrade of I/T system

2. Phase II – Sell 15% to acquire funds for government developments

3. Phase III (optional) – Sell remaining 6-16% to acquire additional funds for government developments. NOTE: If implemented, this option will leave Ghana Government with a 0-10% ownership of GCB. If the above phases were to hold, what will the government strategic investor(s) require for its investments? Here are some investigatory concerns:

a. Hire certified Auditors, accountants, lawyers, and other professionals to thoroughly examine the bank's books and determine true market value of GCB.

b. Review salaries for top GCB Management and Directors during the last 10 years

c. Analyze reasons for sharp drop of GCB profits anytime during the last 10 years, especially the 63% drop in profit from 138billion cedis (mid-year 2002) to 51billion cedis (in mid-year 2003).

d. Evaluate top 100 customer complaints and fix them. A good Customer Satisfaction Indicator will translate into increased business and more profits for stakeholders. A good example is the effective use of Suggestion Box in Sunyani (by Mr. Ebenezer Ntreh, the GCB Brong-Ahafo Area Manager) ensures correction of any inaccuracies in the bank’s operations. Little things like this will pay dividends any day even if there is competition from other banks.

e. Examine top 20 staff complaints. NOTE: Providing adequate/quality training for employees will increase productivity. Such training may be offered online at employees’ initiatives, preferably during off hours. Promotion may be based on improved employee skills, including but not limited to certifications.

f. Upgrade GCB’s Investigation Structures, especially Inspections and Audits. A more frequent inspection and/or audit will likely reduce thefts (in billions of cedis) which we are accustomed to reading in newspapers

g. Assess and improve the extent to which GCB consults with research facilities (e.g. School of Business, University of Ghana) to apply new and effective ways of doing business

h. Inquire why GCB has steered away from the “Money Transfer Business”, an excellent venture that can enhance GCB’s performance. Although GCB has branches in every district, the main players in this lucrative business are Western Union/Agriculture Development Bank (ADB), MoneyGram, Vigo, and Uniteller. While ADB and its partners raked in $160million in 2002, the GCB giant has allowed itself to be relegated to a Lilliputian role. According to Bank of Ghana, inward remittance for January-September 2003 jumped to $1.5billion from $1.3billion in 2002. Year-end extrapolations are $1.73billion and $2.0billion in 2002 and 2003 respectively. If GCB enters this line of business and captures a conservative 10% of the $2billion remittances, it will instantly add $200million to its business. Assuming a 2.5% net profit, GCB will add a cool $5million to its bottom line … which may be used to upgrade its I/T services, provide better training for its staff, etc.

If indeed, the government decides to sell to a Ghanaian strategic investor, does such an investor exist? As shown above, individual Ghanaians or small groups are able to remit $2.0billion annually (via official channels). On the other hand, these remittances are handled on individual basis and are mostly dedicated for specific home-based projects (e.g. family support, funerals, building private homes, small business, etc.). It is also possible that given the right conditions, the overseas-based Ghanaians will pull funds together to acquire the government’s GCB shares – if handled in phases (as explained above). One may ask if there really are existing groups through which Ghanaians (home-based and those in the Diaspora) can work under? There certainly are many Ghanaian investment clubs, churches, associations scattered across the USA, Canada, Western Europe, (perhaps) Australia and Southeast Asia. Examples of investment clubs are: USA - Densu Investment Club, Ghanaian Investment Venture (GIVE), Ghana Investment Club (GIC), etc.; Canada - Abusua Investment Club. There are other clubs outside the western world, including Oasis Investment Club (Saudi Arabia). Many of these investment clubs (e.g. GIVE) require member contributions of $25-100 each month. Other clubs (e.g. GIC) however, require a one-time investment with optional future investments.

In fact, GIC (http://www.gicghana.com/) invests solely in Ghanaian stocks (through Databank, a GSE broker) and is open to all Ghanaians throughout the world. With its presence in Ghana, it is suggested that Ghanaians (individuals and groups) interested in pulling funds to acquire the government’s GCB shares should do so through GIC. If another establishment exists with proven operation (and welcomes all Ghanaians), that organization is encouraged to “stand up” and be counted.

Now, if a leading Ghanaian group is identified to approach the government, how may the purchase procedure proceed? Here are a few suggestions:

i. Find out the minimum amount the government will require from the group, to be taken seriously. The Ghanaian group can make an offer to the Ghana government to accept this minimum requirements (down payment) with an agreement that the outstanding balance would be paid at a future date (e.g. within 2-3 three years). In the mean time, the government would continue to exercise control over the outstanding shares and its activities until the full amount is paid. To ensure that the government does not turn around and sell the outstanding shares to other parties, a clause could be inserted which would prevent the government from selling the assets to other parties once the down payment has been paid. More importantly, a penalty for refusal to sell to the group could be inserted with a clause stating the penalty amount and interest due to the group in case the government refuses to honor the agreement after the down payment has been made.

ii. The leading Ghanaian group may seek partners to finance the purchase. In general, insurance companies, mortgage companies and institutional lenders such as SSNIT and others may be interested. These institutions could be investors or be asked to become lenders to the leading Ghanaian group. Any assets (e.g. GCB shares) already owned by the leading Ghanaian group may be used as collateral for any money borrowed to finance the purchase. When needed, insurance may be purchased to cover the assets and lives of key employees (e.g. GCB Managing Director). Another source of financing may be through the Export-Import Bank (http://www.exim.gov/) in the USA, Canadian International Development Agency (http://www.acdi-cida.gc.ca/home) in Canada or comparable institutions in the UK and other West European countries.

iii. The leading Ghanaian group will need to work with the government. Ghana government may not necessarily have to sell its shares to the highest bidder. As Ghanaian nationals, the leading group stands a good chance of convincing Ghana government officials that it is in the interest of the nation and Ghanaians that the bank remains in the hands of Ghanaians. By selling the government’s GCB shares to a Ghanaian group, the resulting success will encourage other Ghanaian groups to acquire similar ventures in the future, thereby boosting the nation’s development of private Ghanaian business enterprises. This will be a positive shot in the nation’s psyche, certainly “… nurture small companies into giants …”