Minimum Capital Requirement; A Maximum Threat To Employment

All institutions established either for profit or not-for-profit purposes manage costs in their various dealings, with the people (human resource) being the most important and likely to be  the most expensive resource to acquire.

All institutions therefore in their quest to cut down cost, will always look for ways to reduce the human resource population by introducing technologically advanced methods of doing business. This will render some people “useless”.

News of redundancy is no news to us anymore: we hear all the time. Before the announcement by the Bank of Ghana on the new capital requirement, banks had already advanced technologically that the human resource population was diminishing bit by bit. Some banks have Automated Teller Machines (ATMs) that are used for deposits, mobile applicaions for all manner of transactions and services, payment of bills etc.

So one can remotely access their money and perform others like send cash to different accounts in the same bank or different banks, request for ATM cards/pins, cheque books,stop cheques, check balances and statements among others. So the human resource that was needed to perform all these roles will be reduced.

This is a move by the banks to efficiently manage cost. Although human resources will always be needed, the numbers will not be the same. Thus, a huge threat to employment, yet a necessary “evil” in business. Don’t forget it was established for profit purposes. Employment wasn’t their key aim. So as often said, you either adapt or die.

Employment was already under threat from technology and now the new recapitalization figure put out by the regulatory body even makes it worse. It’s not new, as banks have to recaptilize a number of times, the last being ¢120 million.

Some banks had to struggle to get to that figure and some are still struggling. The new figure however, is what can be described as a gigantic increment capable of causing a financial heart attack to so many existing indigenous banks. The increment is one of its kind in history: very huge. “Capital requirement (also known as regulatory capital or capital adequacy) is the amount of capital a bank or other financial institution has to hold as required by its financial regulator.

The regulator therefore demands this minimum capital before a banking license is issued. In other words, before a financial institution can be called a bank, it must first have  at least capital worth ¢400 million.

Existing banks have to recapitalise, and newer banks must have that amount of capital. A bank itself is a creature of law so when the deadline reaches, all banks without adequate capital must cease to be banks. It may not just be an abrupt end to their existence because some window may be given to those affected to make it up. There is a procedure the regulator will follow before revoking any any license.

This announcement of the new capital requirement has not gone down well with the banks and industry players. Although reactions are mixed, the general feeling is that of an attempt to collapse some banks. But the regulator has given its reasons and they are sound.

Many industry players have been talking, proposing other alternatives. Dr Ndoum says, they should categorize the banks so each category will have its minimum capital requirement. But the regulator is yet to bow to pressure. The micro-finance institutions which have been given just ¢ 2 million and have their deadline almost due are also pleading for  a reduction and an extension.

The banks too are pleading for an extension and consideration of their proposals. But the regulator isn’t buying any of that. It must be this year. A committee has since been constituted by the government to look into this whole issue. We hope for an acceptable outcome.

If things remain this way, and the deadline reaches, we would have to see mergers and acquisitions. In effect, some banks and other financial institutions will cease to exist and others will come together to be one entity. This means, the employed staff too will have to see some change. Either mergers or acquisitions will someway somehow occasion  some layoffs.

If you need a case in point, check the recent collapse of UT and CAPITAL banks. All staff cannot be absorbed.  Some will have to go home. This further worsens our already cancerous unemployment situation and this brings us to the unintended consequences. The capital required by the Bank of Ghana may be ‘Minimum’ but the threat to employment is going to be ‘maximum’.

The government has to look at that aspect. It’s a pending albeit unpleasant addendum to unemployment in the economy. The government needs to see how best to assist its people. The idea of a huge financial muscle maybe good but can be a danger to employment.

This should at least make the regulator explore the possibility of categorizing banks. After all, it lacked foresight in its dealings by granting licenses to so many institutions now banks. If it read signs well and did proper checks and research, we wouldn’t have been here. The blame cannot be put on the banks solely. I see some of the findings made by the IMF under their program FINSAP (Financial Sector Adjustment Programme) some years ago when the financial sector was crumbling in the current financial sector. Toxic assets, poor supervision from the regulator, low loan loss provision among others.

We should therefore hasten slowly with this straight-jacket approach because it will affect employment. The need for a better approach should be our focus.

Let us act fast and save ourselves. The well still has water. Let us not let it dry out then we think of water.

The writer is a former banker with the Royal Bank and a concerned citizen of Ghana.

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