The Central Bank has reiterated its call on banks that may not be able to raise the new capital requirement of GH¢400 million by the December 2018 deadline to quickly explore opportunities to merge with other banks.
It said such mergers and acquisitions should lead to larger, stronger and better capitalized banks for shareholders of the merging banks.
A recent release from the regulator, which disclosed this, however, warned that “all proposed merger transactions would be vetted for approval.”
“BoG is currently in the process of finalizing guidelines on bank mergers and acquisitions to facilitate a smooth consolidation in the industry.”
It continued that “it will closely monitor banks’ plans to recapitalize to ensure an orderly recapitalization process. BoG has recently issued its Corporate Governance Directive, which it expects banks to comply with to strengthen their corporate governance practices to promote investor confidence in them and facilitate access to new capital.”
In addition to the aforementioned, it said it would operationalise the deposit protection scheme established under the Ghana Deposit Protection Act, 2016 (Act 931); address specific risks from high Non-Performing Loans (NPLs), poor corporate governance, and poor risk management systems
The Central Bank said it would strictly enforce “fit and proper person” requirements for bank shareholders, directors, and key management personnel to promote high standards in the industry.
It has also pledged to promote stronger risk management in banks (including cyber and information security-related risks); implement consolidated supervision powers provided under the banks and specialized deposit-taking Institutions Act of 2016, to strengthen supervisory oversight over bank holding companies and affiliate companies, among others.
The Central Bank also gave assurance to the banking public that it would continue to monitor developments in the banking sector, “and where needed take strong and decisive action at an early juncture to address emerging issues.”
BoG revealed that it would ensure that depositors’ funds remain safe and make the financial system stable and resilient to contribute significantly to the overall growth and development of the economy.
Giving a background to some issues that precipitated a tightening of banking rules in the country, the bank said the solvency of most banks was threatened by poor asset quality, leading to significant impairments of capital, adding that the results of an Asset Quality Review (AQR) of the banking industry showed that as of April 2017 some banks had impaired capital leading to capital erosion below the required regulatory levels.
“Consequently, such banks lack sufficient capital to support the risks inherent in their asset base, and have no capital buffers to withstand further losses that could arise from external shocks.”
“The erosion of banks’ capital means that their ability to expand credit and finance transformative economic projects would be constrained,” it added.