Six Banks To Follow UniBank, Others


The fate of six local banks (names withheld) hangs in the balance after the takeover of uniBank by the Bank of Ghana (BoG) on Tuesday.

The Central Bank, it would be recalled, hinted that as many as nine banks (two foreign-owned) were facing liquidity challenges after conducting a survey in the banking industry some time ago.

Even though the Central Bank gave the affected banks time to put their house in order and chart a clean path, the financial institutions failed to take advantage of the opportunity until reality started dawning on them.

As a result of that, two distressed financial institutions – UT Bank, a listed company, and Capital Bank owned by Ato Essien, who has been linked to other deals in the financial sector – were taken over by GCB Bank.

On Tuesday, KPMG was appointed by the Bank of Ghana as an official administrator to manage uniBank for six months after which it would return to private management.

Analysts believe that allowing the directors of the collapsed banks to go scot-free without any serious sanction would not instill discipline in the financial sector.

In July last year, the Central Bank gave the nine ailing banks until September 2017 to improve their financial position and reporting.

The financial crisis started in 2015, with some analysts blaming it on the premature exit of Dr Henry Wampah as Governor of BoG.

A careful look at the Central Bank’s statistical bulletin – which gives details of the Bank of Ghana’s expenditure in a financial year – showed that the support extended to the banks shot up significantly in August 2014.

The bank’s line item of Claims by Deposit Mobilization Banks (DMB) showed a sharp increase from GH¢487 million to over GH¢1 billion in June 2015 and increased to GH¢5.2 billion as at January 2017, after which it reduced to about GH¢4.6 billion in May last year.

The defunct UT and Capital Banks got significant amounts of the funds to help them in their daily operations because they were seriously under-capitalised.

uniBank’s Diagnosis
In the case of uniBank, the BoG said in a report on the state of the banking system that it had faced severe insolvency and liquidity challenges over the past two years, with persistent clearing deficits resulting in extensive reliance on the Bank of Ghana’s Emergency Liquidity Assistance (ELA) instrument since 2015.

“As a result, BoG is heavily exposed to uniBank to the tune of GH¢2.2 billion, of which GH¢1.6 billion is unsecured. The bank also faces a significant capital shortfall. On March 20th, 2017, BoG directed uniBank, per a letter, to submit a capital plan and resolve its significant undercapitalization within 180 days from the date of the letter, in accordance with Section 106(1) of the Banks and SDIs Act 2016 (Act 930).

“Since then, uniBank’s Capital Adequacy Ratio (CAR) has rather deteriorated into the negatives from September 2017, and in a much more distressed condition with CAR of negative 24.02% and capital deficit of GH¢1.18 billion as of December 2017. This notwithstanding, the bank has continued to increase its asset base (granting new loans to clients) to GH¢6.1 billion in December 2017 from GH¢4.9 billion in September — amidst increasingly poor loan asset quality.

“The bank’s gross loans increased by GH¢760.67 million within the same period. As a result, its Non-Performing Loans (NPLs) have remained high, further eroding the capital base of the bank and presenting liquidity challenges. The reserve ratio (a measure of liquidity) has remained consistently below 1.0 percent since October 2017, compared to the regulatory minimum of 10 percent, resulting in a constant liquidity shortfall and continued reliance on the BOG’s Emergency Liquidity Assistance facility.”

Meanwhile, the BoG continues to license more microfinance institutions and upgrade savings and loans to conventional bank.



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