After revoking two banking licences, the central bank appears not satisfied with the numbers, still, as it has come open and is “urging” mergers among the particularly undercapitalised local banks.

To meet the new GH¢400 million minimum capital required of them, the banking sector regulator is “urging small and undercapitalised banks with corporate governance challenges, among others, to merge and consolidate their operations”.

In a speech read on his behalf at the 5th anniversary launch of The Royal Bank (TRB), Governor of the Bank of Ghana, Ernest Yedu Addison, said the new minimum capital requirement offers valuable opportunities for consolidation within the banking industry.

“As the central bank, we believe that there are more benefits to be gained from consolidation – hence our bias to encouraging mergers in the industry,” the speech said.

“The consolidation process will expectedly lead to the emergence of big banks to help finance high-valued projects that will be transformative for the Ghanaian economy. In addition, bank consolidation will pave way for bigger operations with relatively lower costs associated with the provision of banking services.

“These will ensure stability and sustainability of the banking sector, and contribute to enhancement of the financial system’s resilience and contribution to the needs of our growing economy,” it said.

The Bank of Ghana, on September 11, 2017, announced that it had increased the minimum capital requirement of banks from GH¢120million to GH¢400million, representing a 233 percent jump.

The commercial banks have until December 2018 to meet the new requirement.

Since the announcement analysts and industry players have expressed mixed opinions; while some worry about wiping out of local players – who are already in the minority when it comes to total assets, others believe that the economy needs bigger banks; and if locals cannot match up, they have to exit.

But the central bank says the new Banks and Special Deposit Institutions (SDI) Act makes provision for the establishment of criteria for mergers and acquisitions, which addresses in more detail what the Bank of Ghana must consider in determining whether or not to approve a merger or amalgamation under the Act.

“These include consideration of competitive effects, financial and managerial resources of the institutions involved, the convenience and needs of the community to be served, the risk to financial stability, and the effectiveness of institutions involved in combatting money laundering and terrorist financing.

Banks should therefore take advantage of these considerations and their associated benefits in detailing plans toward meeting the minimum capital requirement by December, 2018,” the Governor’s statement added.

Need for sound risk management

While they require enough capital to execute operational strategies, banks must be mindful of the fact that adequate capital is not a replacement for sound risk management, the Governor said.

“It is for this reason that the Bank of Ghana will continue imploring banks to improve on the quality of risk management systems, corporate governance and internal control practices. By adopting sound risk management practices, banks will be able to assess and set aside the appropriate capital needed for inherent operational risks as required under the Capital Requirement Directives (CRD) and under the Basel II/III framework.”

The BoG noted that it is currently waiting for feedback from the industry on the exposure draft that has been shared with the industry.

The Governor stressed that the BoG will ensure banks comply with the International Financial Reporting Standards (IFRS) to guarantee uniformity in presentation of financial accounts and accompanying notes to financial accounts.

“The bank will take the necessary steps implementing the newly-issued accounting standard for financial instruments (IFRS 9) in 2018. By so doing, banks will take advantage of the expected credit loss model, which better reflects the fact that credit risk builds in a bank’s portfolio and credit quality deterioration occurs far earlier than when loss events are evidenced,” he added.