Our banks, micro economy too serious for dog and dead goat charade

I am amazed and highly disappointed with the way and manner this country and the people of Ghana handle very critical national issues. Focus is often shifted to the most irrelevant and unproductive aspects of any discussion; unfortunately, the professionals who ought to know better often lead the unenlightened into rooms of absurdity.

I will not lose focus on the bigger agenda of ensuring proper disclosures and those with stewardship do the right things in relation to the economy and the financial sector of this country.

There are rules of engagement in the banking sector however, there are laws and various legislations that are in place to ensure the Ghanaian are not shortchanged hence I will proceed to interrogate the issues playing out within the financial and banking sector of the economy but not to engage in the dog and dead goat gimmick.

Why License False Pretense?

It’s certainly not enough to tell the good-people of Ghana that the collapsed Banks justified their paid-up capital requirement under false pretense. Can I by extension humbly ask the Regulator, if due diligence and compliance was strictly adhered to before licenses were issued but not done under duress neither under any influence?

One of the perquisite to obtaining a license per the Banks and Specialized Deposit-Taking Institution Act, 2016 (Act 930) Section 9(a) is that “the paid-up capital of the applicant is adequate and the original sources of capital are acceptable and do not include borrowed funds”. It is therefore sheer incompetence by the Bank of Ghana to tell us that a bank acquired license under false pretense and true pretense failed to satisfy itself of the source and adequacy of their paid-up capital.

As a serious nation, we must demand the immediate resignation of officers of the Bank of Ghana and better serve dismissals to officers responsible for vetting applicants’ paid-up capital under false pretense.

Capital Adequacy & Assets Quality

Banks and Deposit-Taking Institutions unlike any ordinary company that provide services or produce products for sale, take moneys as deposits from individuals and corporate organizations that become liabilities on the balance sheets since those moneys taken are not the rights (assets) of the Banks and Deposit-Taking Institutions but rather obligations (liabilities). For most of these Banks and Deposit-Taking Institutions, they acquired their licenses when the capital requirements to license a bank was pegged at GHS120,000,000.00.

Fast-forward to September 11, 2017, the Regulator demands of Banks both new entrants and existing Banks to increase capital to GHS400,0000,000.00 with December 31, 2018 as the deadline. Looking at the financial market performance coupled with the economic difficulties I am of the view that raising fresh capital through the sale of shares would have been more difficult. Asking existing shareholders to invest that much within the time frame was likely not possible and the last option was to capitalize income surplus which most of the banks have depleted their income surpluses through frequent payments of dividend supervised by the Regulator.

What this should tell the Regulator and us is that the practice of fixed capital requirement is not sustainable, more so with a sleeping Regulator.

I can only go to sleep with two eyes closed if the capital requirements of Banks and deposit-taking institutions are linked to their everyday activities of deposit taking and creation of loans.

Capital requirements should rise with the creation of loans while reserve requirements are raised with the creation of deposits.

This will then ensure that base on the level of business you do as a bank requirement in terms of capital and reserves are adjusted accordingly.

Assets Quality means the quality of loans on the bank’s books; did I hear the Regulator telling us that huge percentages of those loans are related to shareholders and officers of these commercial banks and were not properly acquired through the laid-down procedures. I assume Banks affected have no auditors neither the Regulator’s auditors noticed any of these infractions prior to 2016. Are we being told that statutory auditors of those bank failed to bring these issues up in their audit or the banks did not report to the Regulator as should be done? Well I think the Regulator ask other financial institutions to submit their borrowing parties to the Credit Reference Bureau; what then happened to the Banks and Deposit-Taking Institutions?

I cannot believe my ears, sorry my eyes reading from the Bank of Ghana’s release that suggests to ensure implementation of IFRS 9 by all Banks and Deposit-Taking Institutions when the first-time adoption was January 1, 2007. It suggests to me that all the other applicable International Accounting Standards (IAS) are being implemented accordingly except IFRS 9 Financial Instruments: Recognition and Measurements. That sounds very loud and clear to Financial Controllers of these Banks approved by the Bank of Ghana yet no accountant of these banks violating your orders and rules have been punished and neither their external audit firms have been sanctioned by the Regulator; very rich.

Merged Bank versus Consolidated Bank

I am yet to understand what the Regulator claimed to have done but certainly cannot be a merger. Mergers have their unique characteristics and none is evident in what has been done; neither are we looking at acquisition. The Bank of Ghana wants us to believe that when it comes to the Banking sector, the Companies Code becomes remit. If not, then, we must be told in plain language that what has occurred is within the ambit of the law and not contrary to Section 230 of the Companies Code, 1963 (Act 179) as amended.

Once a Bank’s license is withdrawn the Bank automatically ceases to exist hence the process for complete liquidation is triggered. If I am right, then Bank of Ghana is not filling us in fully. The appointment of a receiver cannot only be to receive assets (loans) of the Banks; a receiver must receive both sides of the balance sheet. The creation of this new bank must be clearly explained to the people of Ghana and its basis in law.

The economy is clearly suffering from liquidity issues and because of negligence from the Central Bank to supervise the Banks as expected of them without failure, Government of Ghana has issued a local bond of GHS5.7 billion to cover the gap between assets and liabilities; the question is, why must the Ghanaian pay for the negligence of the Regulator? I guess that was the only option left for us hence we should all be quiet and look on while those negligent officers of the Regulator and the Banks walk free.

The new Consolidated Bank Limited I trust have met all requirement under Section 9 of the Banks and Specialized Deposit-Taking Institutions Act, 2016 (Act 930) prior to its creation and we do not wish to be told same stories we are hearing again or is it the case that we don’t matter?

How it all ended

Let me conclude with the Regulators conclusion, which assures clients of these banks of their deposit being safe and we are to say to the Regulator, thank you for safeguarding our deposit and there will be no job losses, which sounds like a sweet talk.

Oh! I nearly forgot to mention that it’s only the Directors and Shareholders of the named Banks that have been changed. Thank you, Bank of Ghana, but again what is the new structure of shareholders and provide us with the new list of all Directors since its Government of Ghana and the people of Ghana that are going to pay for your incompetence’s.

Please for transparency sake lets us know the fees of both the adviser’s and receivers appointed for the newly created bank.

Again, thank you to the Sleeping Regulator.

Michael Nii Yarboi Annan

Managing Consultant

ObjectConsult Limited