Bank of Ghana (BoG) governor, Dr. Ernest Addison believes that the transfer of deposits from the five distressed banks to Consolidated Bank will “impact the economy positively and lead to a relaxation of the liquidity crunch” witnessed over the past four weeks.
“Consolidated Bank is going to take all the good assets and deposit liabilities, they are not taking any toxic assets, this is why we needed a clean vehicle[Consolidated Bank], there are no bad assets in that bank, only good assets including fresh money” Dr.Addison said at a press conference at the BoG head office in Accra.
Already, government has issued a bond up to GH₵5.76billion to finance the gap between the liabilities and good assets assumed by Consolidated Bank, with a total asset of GH₵7billion.
BoG on Wednesday announced that they have granted a universal banking licence to Consolidated Bank Ghana Limited with an initial GH₵450m capital injection to take over the assets of five banks including: The Royal Bank Limited, Beige Bank Limited, Sovereign Bank Limited, Unibank and Construction Bank Limited.
Under the agreement, Consolidated Bank has acquired all deposits and other specified liabilities, and good assets of the five banks.
Furthermore, he indicated that it has approved a Purchase and Assumption Agreement between Consolidated Bank and the Receiver for the five banks. The moves takes effect from 1st August 2018.
He also explained “All deposits of the five banks are safe and have been transferred to the Consolidated Bank. Customers can carry out their business as usual at their respective banks which will not become branches of the Consolidated Bank.
All staff of these banks will become staff of the Consolidated Bank. Boards of Directors and shareholders of these banks no longer have any roles”.
Unibank and Royal Bank
UniBank and Royal Bank were identified during the AQR update in 2016 exercise to be significantly undercapitalized.
The two banks subsequently submitted capital restoration plans to the Bank of Ghana. These plans however, yielded no success in returning the banks to solvency and compliance with prudential requirements.
The Official Administrator appointed for uniBank in March 2018 has found that the bank is beyond rehabilitation.
Shareholders, related and connected parties had taken amounts totaling GH¢3.7 billion which were neither granted through the normal credit delivery process nor reported as part of the bank’s loan portfolio.
In addition, amounts totaling GH¢1.6 billion had been granted to shareholders, related and connected parties in the form of loans and advances without due process and in breach of relevant provisions of Act 930.
Altogether, shareholders, related and connected parties of uniBank had taken out an amount of GH¢5.3 billion from the bank, constituting 75 percent of total assets of the bank.
In the case of Royal Bank, an on-site examination conducted by the Bank of Ghana in 31st March, 2018 revealed a number of irregularities.
Its non-performing loans constitute 78.9 percent of total loans granted, owing to poor credit risk and liquidity risk management controls.
A number of the bank’s transactions totaling GH¢161.92 million were entered into with shareholders, related and connected parties, structured to circumvent single obligor limits, conceal related party exposure limits, and overstate the capital position of the bank for the purpose of complying with the capital adequacy requirement.
Sovereign Bank
In the case of Sovereign Bank Limited, as part of Bank of Ghana’s investigations into the failure of Capital Bank Limited (currently in receivership), it emerged that Sovereign Bank’s licence was obtained by false pretences through the use of suspicious and non-existent capital.
The bank is insolvent and unable to meet daily liquidity obligations falling due.
Liquidity support granted so far to the bank amounts to GH¢21 million as of 31st July 2018. The bank has not been able to publish its audited accounts for December 2017, in violation of section 90 (2) of Act 930.
Beige Bank and Construction Bank
Beige Bank and Construction Bank were each granted provisional licences in 2016 and launched in 2017.
Subsequent investigations conducted by the Bank of Ghana, revealed that similar to the case of Sovereign Bank, both banks obtained their banking licences under false pretences through the use of suspicious and non-existent capital, which has resulted in a situation where their reported capital is inaccessible to them for their operations.
BoG has taken the above measures as part of its efforts to address legacy problems in the banking sector and to restore the stability and resilience of the financial system.
While some of the weaknesses in the sector were attributable to macroeconomic factors, a trend of poor corporate governance, poor risk management practices, related party transactions that were not above board, regulatory non-compliance, and poor supervision (questionable licensing processes and weak enforcement) had emerged over the years, leading to a significant build-up of vulnerabilities in the sector.
BFT