Recapitalize...or Perish! by Frederick Sowah

Recapitalize...or Perish!

by Frederick Sowah

Published on Tue, May 19 2009 by Frederick S.
The year 2008 was a busy year for the Ghanaian parliament, as it passed some major laws towards reforming and further regulating the country's financial sector. Some of the crucial interventions were: the introduction of an anti-money laundering act; a new collateral enforcing regime; a new national electronic payment system; a new code for takeover and mergers for publicly-held companies; and new guidelines on solvency for the insurance sector. As already mentioned, the legislation were primarily passed to monitor the financial system, as well as increase its capacity to host relatively larger multinational deals.

A few weeks ago Ghana held its 8th annual national banking awards to recognize banking excellence. The ceremony was organized by the Corporate Initiative Ghana (CIG), a group founded in 2001 by corporate bodies from different sectors of the economy. The awards judge banks on their output and innovation in terms of customer service, financial performance, and corporate social responsibility; the entire process is overseen by the reputable audit, tax and advisory group KPMG. The highest honor of the night, “Bank of the Year,” went to Zenith Bank Ghana Ltd.

The pomp and pageantry that surrounded the awards ceremony belied the new winds of financial changes blowing across the Ghanaian banking industry—last year the Bank of Ghana increased the minimum capital requirements for banks. The different categories of banks were given different deadlines to comply with the new directive. The new minimum capital requirement for a universal banking license is now 60 million Ghana cedis (about 42 million dollars), and banks with Ghanaian majority ownership and those with foreign majority ownership have until the end of 2010 and 2012 respectively to meet these new requirements. The directive is expected to promote consolidation in the sector, and enable banks to underwrite and support relatively larger‐sized transactions such as those contemplated in the soon-to-launch petroleum sector. (Ghana discovered huge oil fields last year, and full scale crude production is expected to commence in 2010).

Many of the banks are expected to come to the market to raise money through shares offers. Some smaller banks might find it wiser to merge with the bigger ones in order to remain competitive. With a significant portion of Ghana’s middle class employed in the banking sector, the threat of loss of jobs is quite real, should some banks merge. A loss of jobs among the rapidly growing middle class will lead to default in mortgages and auto loans, two credit facilities that have found wide-spread popularity among that class of society. The ramifications could be far-reaching because this is not a country where traditionally people that lose their jobs easily find replacements, and the current economic climate will not enhance this status quo in the least.

While the government believes that new capital requirements will benefit the nation immensely in the long run, some of the foreign banks are not happy about the relatively short time that they have to meet those new standards. Nigerian banks, the largest foreign players in the Ghanaian banking sector, feel that the new directive is unfairly target at them. But the Ghanaian government disagrees, and argues that the latest requirements will rather enable the banks stay competitive and partake in transactions that they would have otherwise missed out due to the inadequate financial resources. One can only hope that the common man will benefit one way or the other from these new measures.

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