October 11, 2017
Source: Dominick ANDOH/thebftonline.com/Ghana
Indigenous banks are in a race against time to increase their total paid-up capital to GH?400 million before the December 31, 2018 deadline set by the central bank of Ghana.
An analysis of the July 2017 paid-up capital, income surplus, and capital shortfall of banks reveals that decade-old major indigenous banks face the prospect of being taken-over, given the enormous capital shortfall they have to correct.
The National Investment Bank (NIB) leads indigenous banks that have to raise millions in their recapitalisation drive. The NIB has a capital shortfall of about GH?255million; it has a stated capital of GH?70million and an income surplus of GH?74million as at July 2017.
The ADB, a publicly-traded company with majority government ownership, has a capital shortfall of GH?310million, a stated capital of about GH?275million but a negative income surplus of about GH?185million.
The ADB, in December last year, started trading on the local bourse. Institutions with an interest in the company include: SSNIT, 9.5% of the shares; Starmount Development Company Limited, 11%; and SIC Financial Services 10%.
Others are EDC Capital of ECOBANK 6%; and Stanlib, a subsidiary of Stanbic Bank Group, 4%.
Other local banks such as Prudential, Omni, Beige, the Royal Bank, Construction Bank, GHL Bank and UMB among others, have a capital shortfall of between GH?190million and GH?320million.
Given the amount of capital local banks would have to raise within such a short time, analysts have advocated a policy that will ensure State Owned Companies with good balance sheets invest in local banks.
There are about 36 state-owned enterprises in the country, spanning trade and industry; engineering services; media and arts; the energy sector; transport; agriculture; and water and housing.
The transport sector has the likes of the Ghana Ports and Harbours Authority (GPHA); the Ghana Airports Company Limited (GACL); and the Volta Lake Transport Company (VLTC), a subsidiary of the Volta River Authority (VRA).
GIHOC, the Cocoa Processing Company, Goil, Produce Buying Company, SIC and GCB are the other SOEs analysts have argued need to be profitable and invest in local banks.
A case for numbers
At a recent annual general meeting of the Ghana Association of Bankers (GAB), the Finance Minister, Ken Ofori-Atta, said the economy needs about five “well-capitalised indigenous banks so that we have a system that is well-represented” to support the growth envisaged.
Others, however, contend that the benefits of having a large number of banks should not be discounted.
The increase in the number of universal banks operating in the country over the past ten years has led to more innovation for the benefit of consumers.
Benefits include increase in electronic-based products, competitive cost of credit, and increased accessibility to physical bank branches across the country.
The current universal banks have been preparing for the next half-decade since 2014. Indeed, PwC’s 2014 Ghana Banking Survey notes that: “Many of the [banking] executives have already begun a switch from a ‘watch and see’ mode to a ‘position and grow’ mode in anticipation of changes in the banking sector over the coming five years”.
This clearly shows that local banks have a deep understanding of the market and what it holds in the future, despite their limited financial muscle.
Unlike their foreign counterparts which have the backing of their parent companies abroad, local banks must be supported to stay in business for the benefit of consumers.