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No Bank Must Be Left Behind In Recapitalization Policy

The Chartered Institute of Bankers (CIB) is urging the Central Bank to consider a tiered recapitalization policy that will enable smaller-sized banks meet the eagerly awaited increment in the industry’s minimum capital requirement.

President of the CIB, Patricia Sappor, argued that this approach will ensure that banks are able to serve different segments of the market.

Another way of looking at bank capitalization is the segmentation of banks to allow lower tiered banks that have met the initial threshold to serve particular sectors of the economy with innovative products and services whilst banks with increased capital base (higher tiered banks) finance bigger projects.

Lower tiered banks must be assisted with a clear policy so that they are not left out of the banking system. A policy to stagger bank capitalization in terms of the types of banks and their corresponding target markets is critical, timely and reasonable, she said.

The Central Bank in the last quarter of 2016, served notice to the banking sector that it will be increasing the minimum capital requirement of banks from the current value of GH¢120million.

Since the last increment, economic pressures saw inflation peak at 19.2percent as at March 2016 before trending downwards in subsequent months; the local currency has also fallen by more than 100percent in value; and non-performing loans (NPLs) has spiked to beyond 20percent.

The BoG, in its announcement said, the recapitalisation is to enable the banks withstand internal and external shocks, finance big ticket transactions, be competitive on a global scale, be the enablers of economic growth and not aimed at directly forcing mergers and acquisitions.

Since the announcement, industry players and analysts have differed on how and what form the recapitalisation should take. Managing Director of CAL Bank, Frank Adu, Group CEO of CDH Financial Holdings, Emmanuel Adu-Sarkodee and Ken Thompson, CEO of Dalex Finance have all called for a hike in the stated capital to up to GH¢1billion so that banks can comfortably support economic growth.

But Felix Nyarko-Pong, the former CEO of uniBank, told the B&FT that banks should not be forced to merge through a huge increment in the minimum capital requirement. He noted that even though banks do require an increment in capital, the Central Bank should allow banks to grow their capital based on the strength of their balance sheet and operate in sectors they are comfortable with.

In a paper titled: Bank Recapitalization in Ghana: Benefits, Challenges and Key Recommendations, Mrs. Sappor, believes that apart from enhancing the profitability of banks, recapitalization will create the enabling environment for the lower-tiered banks to thrive and to compete favourably with the first class banks in the country.

Mrs. Sappor added that the Central Bank should give the banks ample time to explore ways of meeting the new capital requirements, while advising banks to take a long-term view of the economy and prepare their capitalization plans ahead of time every four to five years.

Banks should continue to develop winning strategies for capitalization; a strategy that ensures growing shareholder value, market share and profitability.

There is the need to sustain Ghana’s strong, reliable, competitive and healthy banking sector that forms part of the global financial system. Notwithstanding, there should be an all-inclusive banking system where banks would be segmented and empowered to support the retail market in Ghana, particularly in the financing of SMEs she added.

Mrs. Sappor therefore urged the Central Bank to use this consolidation process to continue to support the banking system to embrace the structural changes in order to place Ghana at the frontier of banking.

We need an industry that has the ability to support deeper financial markets with dependability to settle bigger transactions, become the custodian of financial assets for large institutions and ultimately have the ability to support the Ghanaian economy.

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