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Recapitalisation & Then What Next?



recapitalization of banks in Ghana capital

Banks and their customers will need to transform to make the recapitalisation exercise worthwhile

banks in Ghana Recapitalisation“The wheel always turns” is a popular cliché that aptly describes the cyclical nature of the credit and business markets. It also describes one of life’s truths, in that many a time, you find yourself in the exact same place as you started.

The new rule requiring licensed banks in Ghana to increase their minimum capital levels to GHS400 million by December 31, 2018 has received mixed responses. Advocates of the directive point to an increase in capital buffers to absorb possible external shocks and trading losses. 

Notably, the new rule is risk-based, which means that banks will be expected to hold both minimum capital and additional buffer capital to reflect the risks inherent in their portfolios. This approach is consistent with the principles of the Basel framework, an international regulatory risk management framework for banks. 

Additionally, advocates cite the potential for bank consolidations, positing that the banks that survive will be in a stronger position to underwrite higher ticket transactions and achieve economies of scale. Critics on the other hand, decry the “one-size-fits-all” approach to Bank regulation. Not all banks need to be big, they argue. Furthermore, they contend that local banks will struggle to independently meet the new requirements, resulting in a banking sector that is dominated by externally–controlled banks.

Related: Microfinance institutions are failing and this is why

There are compelling reasons to side with or against the arguments being advanced. However, there are other topical matters that the banking industry and businesses in Ghana need to confront, as the higher capital requirement is not an end in itself. A bank’s ability to withstand operational and financial losses undoubtedly improves as it increases its capital.  Nevertheless, doing so does not necessarily reduce the incidence of non-performing loans or the severity of trading and operational losses. After all, Northern Rock, a British Bank and Countrywide Financial, an American Bank, both high-profile casualties of the last Credit downturn in 2008-2009, were big banks with share capital levels of £124 million and $2.4 billion respectively at the beginning of 2008.    

In their role as regulators, Central banks often face a dilemma balancing the need for a competitive banking sector with the additional supervisory demands a sector with a large number of banks presents. This is exacerbated by a scarcity of professionals experienced in modern banking supervision. In particular, having several small banks which lack the wherewithal to withstand modest shocks to their business also presents a risk to depositors. With the banks’ low capital bases, there is an increased risk of systemic failure, which occurs when the imminent or actual collapse of a single distressed bank adversely impacts the perception of stability of other banks, all of which are interconnected. Eventually, this could result in a cascading failure of several banks. It is for these reasons that some financial institutions in jurisdictions such as the US, UK & South Africa are tagged as “too big to fail”. The rationale is that these banks are so large and so interconnected that their failure would be harmful to the broader financial system. As a result, they must comply with more stringent regulatory requirements and be supported by the Government and the Regulator when faced with potential failure.

Related: Wala: The free digital bank account that allows deposits and withdrawals at ATMs

Unlike some countries which require different licenses for different classes of banks, all banks in Ghana are issued with a Universal Banking licence. This license regime partly explains the seeming “one-size-fits-all” approach to certain aspects of bank regulation, such as the minimum paid up capital requirement. But should that be the case? Comparing Ghana to other developing countries such as Nigeria and South Africa provides interesting perspectives. The Central Bank of Nigeria for example, classifies Banks as Regional, National or International, and varies the scope of permissible activities and required capital levels accordingly. Furthermore, eight large banks have been designated as Systemically Important Financial Institutions, (SIFI). This designation imposes an additional set of specific rules, including higher minimum capital levels consistent with their size, international reach and scope of business operations. The South African Reserve Bank (SARB) does not distinguish between bank licenses, but it sets different capital requirements depending on the bank’s activities. The SARB also further prescribes a Domestic Systemically Important Bank buffer (D-SIB), which is specific and confidential to the five banks that have been designated as such.

Lessons learned

Aside from regulation, behaviours must change radically on all sides. Without a fundamental shift in the approach to credit origination, a drastic change in bankers’ posture towards problem credits and an uncompromising stance on taking corrective action in response to early warning signs of credit distress, the incidence of elevated bad loans is likely to recur in the future.   A cursory look back at many of the large debtors across the sector at the peak of the credit cycle reveals several common worrying themes  – high leverage and weak balance sheets; bi-lateral facilities across multiple banks, with limited visibility on borrower behaviour across the respective banks; inadequate shareholder financial support; collateral with aggressive valuations, poor disposal prospects or limited alternative uses;  businesses within a diversified group, with a dominant “cash cow” that supports the other weaker affiliates, mismatches between the currency of indebtedness and the currency of revenues,  among other deviances.

Related: Building an inclusive digital payments ecosystem in Ghana

Equally, borrowing companies will need to improve their operational and financial management practices in order to achieve sustainable growth. Budgeting and cash flow forecasting disciplines must become entrenched, as must adherence to financial reporting, regulatory and tax requirements.  Shareholders, who are the “residual claimants” in the business, need to step up and support their businesses. This support includes seeking external equity investors to support the business through its early stage endeavours until ample cash flow is generated to service any borrowings consistently. Further, they should avoid regarding banks as the only lifeline in times of distress. Corporate governance principles need to be adopted, and supported by a more robust and modern legal paradigm.

Several corporate laws in Ghana are notably antiquated, with laws such as the Companies Act (1963), and the Bodies Corporate (Official Liquidations) Act (1963) desperately in need of an update to reflect the transformation in the domestic and global economic landscapes.  Many industries globally have been severely disrupted by the on-going digital revolution.  As a result, the Government, Regulator and banks will need to carefully determine the optimal mix of policy interventions, regulatory provisions and capital allocation options to promote a sound and sustainable financial sector and make Ghana a more competitive business jurisdiction.

By Kwamina K. Asomaning

Head, Corporate & Investment Banking

Stanbic Bank Ghana

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Building an Inclusive Digital Payments Ecosystem in Ghana



digital payments ecosystem Ghana

A Diagnostic Report by Better than Cash Alliances shows Ghana has taken important steps toward digitizing its economy, and has several of the building blocks of an inclusive digital ecosystem already in place.

The Managing Director of Better than Cash Alliance, Dr. Ruth Goodwin-Groen explains that leading by example, the progress made by government digitalizing its payments encouraged large private businesses to take positive steps in the digitalization process.

Read also: Learn how to make money with your smartphone

Even so, Ghana remains at the initial stages of its digitization journey, with cash still prevalent in many parts of the economy. The report points out that that estimated annual value of payments made through digital channel in 2016 was 561 billion cedis. Out of this figure it is deduced that 37% of payment is made through electronic channel while the remaining 63% is made by cash


A number of key barriers must be overcome if the country is to drive forward its digitization agenda. The report draws on a fast-growing body of knowledge about success factors in similar markets. It also examines three areas of specific focus. Government fees and fines, public utility payments, and the fast-moving consumer goods sector are areas where digitization can have particularly powerful impacts.

Read also: 21 Legit ways to make money online


Realizing the potential gains offered by digitization will help expand financial inclusion, boost government revenues, and drive new economic opportunities for Ghanaian individuals and businesses. In doing so, greater digital payments can significantly strengthen Ghana’s economy and society, now and for generations to come.

Read also: Wala: The free digital bank account that allows deposits and withdrawals at ATMs

The report concluded that the centralized National ID system is crucial for expanding financial inclusion in the informal sector

By Rebecca Essilfie

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Britain Gives Directive to Freeze Accounts of Illegal Immigrants



UK illegal immigrants

The UK government is giving directives to freeze bank accounts of Ghanaians and other nationalities starting in January, 2018. These new directives by the UK Government is in an attempt to extract all illegal immigrants from the country.

The move follows the UK Government’s decision to force banks and building societies to freeze the accounts of failed asylum seekers, foreign national offenders and visa over-stayers.

Read also: How to avoid bank charges on your bank accounts

The measures are part of Prime Minister Theresa May’s plans to create a “hostile environment” for illegal immigrants in Britain, and the accounts of those identified will be closed down or frozen.

According to a report by city FM, Banking consultant Nana Otu Acheampong reacted to this development and raised the concerns that, the development will have an impact in the banking sector.

Read also: This lady shares her hard lesson on savings account

He says savings even though their monies will be reverted to treasury once they are able to prove their entitlement, he warns that it will be better for Ghanaians living in the UK without any legal basis to immediately transfer their accounts or close their accounts to avoid falling victim.   He adds that persons who do not take action because they are unaware of the development will lose their monies.

By Rebecca Essilfie

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Here’s an Easier Way to Save Money and Become Richer



save money

If you want to become rich, then you absolutely have to develop the habit of saving –regularly. Many have discounted the impact of regular savings to make you rich. There have been definite statements by some millionaires suggesting that savings cannot make you rich. You may have to discount this notion and begin to consider stepping up your savings game, if you don’t have the financial muscle to take the risk that the super rich take with their money.

Read also: This lady shares her hard lesson on savings account

A good savings habit a one every one must develop, and practice consistently to gather size of capital required starting a business. You also need savings to fall onto in times of emergency, where you cannot quickly convert other assets into cash. Consider an opportunity knocking at your door but you are unprepared to take it because you simply do not have the cash. It is in many of such situations that you realize the need to have savings.

Read also: Unconventional ways of saving money

Many struggle to save money even though they earn income on a regular basis, say monthly. Savings shouldn’t be a difficult task, if you are prepared to do so. The way to make savings a seamless act is by automating it. How do you do this? It’s actually quite simple. If you are a regular income earner, you simply have to talk to your banker to put a standing order on your account for the amount you’re willing to put away for future use. Putting a standing order on your salary account means a constant deduction of the indicated amount from your account into a specified account (a savings account) or investment product. By so doing, you don’t have to battle with the inertia that grips us whenever we are paid and we want to put aside a portion of it.

In a similar way, you can also talk to your investment house (if this is different from your regular banker) and sign on to a direct debit scheme, which allows them to receive on your behalf, a specified sum from your salaried account, which is applied directly to your investment with them.

Read also: Which is better? Current or Savings account

Savings is a powerful habit that you need to develop if you want to become rich and be prepared for opportunities which knock on your door.

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