Ghana Banking Sector: Recapitalisation of Ghana’s Banks
The recapitalisation fever griped Ghana’s financial sector about five years ago, which helped to make most banks in Ghana robust and profitable compared to their peers in the subregion. As of now, Ghana has more than 27 banks.
Ghana Banking Sector: Recapitalisation of Ghana’s Banks
Not until recently, commercial banks in Ghana had to raise a minimum of GHC25 million, the equivalent of about US$14.5 million, as minimum stated capital to enable them meet regulatory requirements and continue to be in business.
Having watched closely the sterling performance of the national economy, the discovery of oil in commercial quantities and the subsequent start of production, the country’s Central Bank directed that all banks increased their minimum capital to GHC60 million (about US$30 million) to enable them contain the risks emanating from that growth.
But that was meagre, especially given the bigger transactions that went on in the country following the consistent strong growth posted in all sectors of the economy. For instance, although the Ghana Cocoa Board, regulator of Ghana’s highly priced cocoa industry, has, over the past three years, been raising a minimum of US$1 million annually from financial institutions to fund cocoa purchases, none of the country’s over 27 banks had participated in the deal without having to seek financial support from their respective head offices, often stationed in outside Ghana.
Similar transactions of high magnitude occasioned by the country’s booming economic growth, a consistent rise in foreign direct investment (FDI) inflows and the recent discovery and commercial production of oil had also dripped to the foreign market as the banks operating in Ghana at the time took comfort in funding comparatively smaller transactions. That led to a massive capital flight as most multinationals and even some indigenous companies were forced to borrow from foreign financiers.
But things have since changed, thanks to a recapitalisation fever which griped the country’s financial sector about five years ago.
Having watched closely the sterling performance of the national economy, the discovery of oil in commercial quantities in 2007 and the subsequent start of production in late 2010, the country’s Central Bank – the Bank of Ghana – directed that all banks increased their minimum capital to GHC60 million (about US$30 million) to enable them contain the risks emanating from that growth. The recapitalisation, which was greeted with mix reactions from industry players and stakeholders, was also meant to ensure that the banks were liquid enough to participate in high worth deals, something the Chief Executive Officer of UT Bank, Mr Prince Kofi Amoabeng, said was positive. “I think that when it comes to the financial sector, the government has actually done a lot to make sure that we are stable,” he said, mentioning the recapitalisation directive by the Central Bank, the concentration on risk-based supervision and the recent migration to the much-talked about BASIL (BASSET) two and three. Most of the banks have even raised their minimum capital base to over GHC100 million following the recapitalisation directive.
These reforms, together with individual controls, have helped make most banks in Ghana robust and profitable compared to their peers in the subregion. For instance, the Ghana Commercial Bank, which is virtually a household name in Ghana, posted a return on equity of 49 per cent, after its net profit rose to about GHC138.6 million (about US$69 million) from the previous year’s close of GHC16.9 million. That represented an annual growth rate of about 820 per cent. The UT Bank, one of Ghana’s most profitable and leading private banks, announced similar results for last year. Its interest income was GHC134.1 million in 2012, up from the 2011 close of about GHC100 million. Continue reading…