Troubled banks relapse into financial distress, BoG 'take over' imminent

Troubled banks relapse into financial distress, BoG 'take over' imminent
Source: Ghana|Myjoyonline.com | JoyBusiness
Date: 07-11-2017 Time: 07:11:53:am
BoG Governor, Dr Ernest Kobina Yedu Addison

Some of the country’s distressed banks have swung back into what can be described as “disturbing” financial distress.

This is barely three months after these banks submitted credible plans to the Bank of Ghana  (BoG) on recapitalization efforts and the Bank of Ghana took steps to begin sanitizing the industry.

Industry watchers, including high ranking officials in these banks, are predicting that the current situation, could force the Central Bank to move in and take over the day-to-day administration of these banks unless the situation improves dramatically.

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Sources say a take-over of the day to day administration will be in line with the dictates of the new banking law and will prevent a situation where their persistent failure to meet the required regulatory capital will precipitate a withdrawal of their operating licenses.

Why BoG must act now?

According to some analysts the move by Bank of Ghana is critical to avoid the “troubles” of these banks from transmitting to other banks in the banking sector and to the non-bank financial institutions which are already in a dire situation.

Already, there are internal reports coming from the central bank which show that almost half of the entire micro-finance institutions are in trouble “capital -wise” and the bad non-performing loan situation could force many closures.

The capacity of the Central Bank in dealing with the situation at the micro finance institution level is what is said to be slowing down the process of action.

Failure to quickly deal with the situation could mean bigger problems for the supervisor, down the road and could in the medium-term affect confidence in the industry.   

How these banks got here?

Several reasons had been given for the challenges facing the “troubled banks”. Bad corporate governance practices, rising loan defaults from a weak economy and government’s indebtedness to these banks are some of the reasons.

This has affected the operations of some of these banks making it difficult to meet their day-to-day financial obligations including clearing settlement.

The half year numbers of Banks showed that a lot of these institutions were really not out of their troubles with most of them recording very low capital adequacy ratios, which needs quick regulatory intervention on their situation.

The big challenge facing the Central Bank is on whether it is adequately resourced enough to provide the necessary liquidity to keep the banks afloat.

An analyst indicated that if a capitalization review were to be conducted on the Central Bank today, the results would reveal that BoG would require some huge capitalization to ensure that they are adequately resourced to meet the challenges of ensuring financial stability and soundness.

Bank of Ghana’s dilemma

Persons with working knowledge on how supervision operations have evolved at the Bank of Ghana over the years say the regulator wants to be careful on how it handles the situation so as not to send wrong signals to the market. 

One of the said banks in question was on the previous list of banks to be originally bailed out by the Bank of Ghana. The bank submitted plans only to relapse back into this terrible situation.

The Banking fraternity is watching closely these developments and hoping that the Central Bank would be fair and transparent in its application of the law, similar to what was applied in the case of the two failed banks.

IMF’s Pressure

The pressure from the IMF is grounded in the country's new banking law.

The IMF is keen on getting the Central Bank to follow the Law and avoid a situation where a complainant could drag the Central Bank to the courts for non-adherence to the tenets of the SDI Law.

As a result, the IMF is mounting pressure on the Bank of Ghana to move in quickly and deal with these banks said to be in distress.

The key worry for the Fund is that if the problem is allowed to linger on long enough, this could bring the entire industry to a grinding halt.

Who are these troubled banks?

Even though JOYBUSINESS knows these banks, but wants to withhold their names for now, just like how we handled the two commercial banks UT and Capital which later had their licenses withdrawn by the regulator.

Sources say the banks said to be in serious distress are two for now.  But the number could even increase to three soon.

 No need to panic

According to persons close to the Bank of Ghana, there is no need for depositors of these banks to panic, this is because things are under control with no need for panic withdrawals.

According to this high ranking official with deep knowledge of the Bank of Ghana’s operations and dealings, the current challenge facing the industry are under control, and these actions are rather needed to revive confidence in the sector.

The source cites instances where none of the depositors of defunct UT and Capital Banks even lost their deposits.

One depositor tells JoyBusiness that he had about some 5 thousand Ghana cedi investments with UT and his money is still intact after the GCB partial take-over of the institution.

So this could mean that whatever happens to your bank you are still assured of your deposits. 

Is the challenge facing the banking sector over after UT/Capital bank collapse?

Well, for some analysts that JoyBusiness has engaged it looks likes their troubles are still not over. 

A careful scan through the financial results released by the banks so far showed that most of them are still sitting on toxic assets or having problems in recovering loans that they fear might go bad.

Some of the bad corporate governance practices that caused the collapse of UT and Capital banks are still prevailing in the banking industry and an overhaul of the entire banking sector governance including quickly moving into BASEL II and III norms will help.

But the big question is how far the Central Bank has gone into formalizing the crucial Basel Norms? There is still a lot of work to be done at BoG including sharpening its approach at supervision.

More job lay-offs expected?

Despite assurances of no worker would lose his or her job as a result of the partial takeover by GCB of UT and Capital bank , it appears that is not the situation on the ground.

This is because JOYBUSINESS understands already 100 workers of UT and Capital bank are going home.

There are even reports that the number be going up in the coming.

This is because the selected acquisition in more hands doing the same job. There are fears that if more banking closures happen, it would obviously lead to some serious job loses.

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