President Akufo-Addo has agreed to set up a 10-member committee to deal with calls by local banks for the extension of the deadline for the new minimum capital requirement.
The decision to set up the committee was reached at an earlier meeting between the president and the local banks.
The 10-member committee will comprise of three members from the Bank of Ghana, three members from the Ministry of Finance, three members from the local banks and a chairperson to be nominated by the president.
According to JoyBusiness sources, the Committee should be ready by Tuesday 17th April and the final report be ready by 26th May.
Petition by local banks
In a petition cited by JoyBusiness, the local banks stated, “Your Excellency, Bank of Ghana’s past directives on new capital requirements had always given an adequate time of an average of 4 years for compliance by banks.
"The last directive in 2008 gave local banks 4 years and 10 months after the intervention by His Excellency, the then President of the Republic of Ghana in response to a petition by the Association of Indigenous Banks.
“The current increase in the minimum capital from GH¢120million to GH¢400million announced by Bank of Ghana in September 2017, giving the banks one year and three months to comply, is too short and if the duration is not extended sufficiently, its attainment by the indigenous banks could lead to a wholesale of the indigenous banks to foreigners.
"Such a situation will put the control of the banking industry in the hands of foreigners which could have future negative consequences on the economy particularly in the provision of credit to the agricultural sector and the informal sector in general,” it concluded.
The committee would also look into other issues like having a level playing field for both local and foreign banks when it comes to government projects and taking steps to deal with payment of the Non-Performing loans, which has reached over GH¢8 billion as at the end of last year.
BOG remains resolute
In the meeting, proposals were made to the local banks to look at merging in other to meet the capital requirement of GH¢400 million.
JoyBusiness understands that proposals to extend the December deadline might not be granted since the Bank of Ghana is insisting to press ahead with its directive.
According to persons close to the Central Bank, they believe the best way out is to merge or look at moving into lower-tier of banking like Savings and loans.
Read below excerpts of the memo from the meeting:
The meeting started at about 1pm and lasted for about 2 hours.
2. The Objective the meeting was to discuss ways to strengthen Ghanaian Banks
3. All Local Banks were represented including government owned and those with heavy foreign shareholding
4. The Sequence of the meeting:
ü President Introduced the meeting with a long introduction but main messages were
· We cannot allow foreigners to dominate key sectors ( Banking, Mining, Oil…)
· We need to support Local Banks to become strong
· There should be a holistic and long term approach and not mere increase in capital (because every 4 years we come to same situation)
· He mentioned the economic model he believes in which is industrialization driven by local banks
ü Representative of Indigenous Banks Spoke ( Chair, Royal Bank). Highlights are ( See Petition attached)
· We appreciate the effort by BOG and Government to strengthen the Banking Sector
· We are not necessarily opposed to increase in capital but any attempt to enforce it within a short time can push local banks to foreign hands.
· We want more time as we have experienced in the past
· The key issue is governance not capital. Additional Capital without good governance can make the situation worse. Local banks have learnt a lot from the UT/Capital story.
· Good governance should not be by choice . It should be for everyone.
· Government’s monetary and fiscal performance are also key ( cedi depreciation, contract payment)
ü The governor Spoke on two main points:
· Main reason for increase are
1. the economy/exchange rate
2. Bank’s lending practices leading to high NPLs, provisions, capital Impairment
3. Single Obligor waivers
ü Other Contributions: In favor (other government officials)
· Government must give the “juicy deals” to Local Banks not foreign Banks- Deposits, Collections, Credit
· The court system should be strengthened to help deal with delinquent loans
. In the cases of Nigeria and Malaysia there is a conscious effort to give government business to local banks and build their capacity to deliver.
· If more time is always given to local Banks, what is special about 2017/2018.
· Government/BOG must enforce anti dollarization rules
· BOG must stop negative media comments about local banks
· Most of these foreign banks are run by Ghanaians so governance is really the issue not capital or capacity
· There is available information that Local Banks support SMEs and local businesses including government contracts
· Who said all Banks want to do big tickets?
· BOG must not give SOL waivers anyway
· There can be a tir tiered
ü Other Contributions: against ( Vice President, Governor)
· Local Banks should merge. If they can form an association, they can begin merger discussions
· Ghanaians like to own 100% of nothing
· Mergers and Acquisitions can take a short time. It is the integration that takes time.
Nigeria and Malysia had and bigger increase within one year
ü Final Decision:
President Decided to form a committee as follows:
· 3 members from BOG
· 3 members from banks
· 3 members from ministry of Finance
· Chair from presidency
· Timelines: Committee should be ready by Tuesday 17th April and the final report should be ready by 26th May.