Universal banks wishing to enter the Ghanaian market will require GH¢120million as stated capital before a licence is issued to them to operate, Deputy Governor of the Bank of Ghana, Millison Narh, has said.

“The new minimum capital requirement is an entry requirement; you have to meet it before you are given the licence to commence operations.

“The existing banks don’t have any problem; all they have to do is to look at their risks and augment their capital appropriately. But so long as they increase their risk, they will have to increase the capital appropriately.”

Speaking at the 32nd annual general meeting of the Ghana Association of Bankers (GAB), Mr. Narh said: “We have raised the minimum capital requirement so that we can have a very strong financial system to support the real sector of the economy.”

In 2009, the Bank of Ghana raised the minimum capital required to GH¢60million, and banks with majority foreign ownership were required to pay by the close of 2010, while local banks were given up to the end of 2012.

By December 31st 2012, all the banks (foreign and local) had met the requirements set by the central bank -- pushing up considerably the industry’s total assets to GH¢27.2billion and making it what the Bank of Ghana describes as 'profitable and solvent'.

Newly-elected president of the GAB, Simon Dornoo, said most of the existing banks will not be affected even if they are asked to increase their stated capital because quite a number of them already have stated capital in excess of the amount.

“I think most banks will not be affected by this figure because most of us are well capitalised, and even in excess of GH¢120million. It will be relatively easier for most banks to meet the requirements. But for the new entrants they just have to commit to the new amount. Think about it, the amount is not as much as it sounds.”

But Mr. Dornoo underscored the importance of the increment because “stronger banks deliver better opportunities, and also there is cost to supervision as well; so maybe the Central Bank is trying to trade-off the cost to supervision, which can be quite high if you have so many banks to supervise”.

In 2012, the industry focused more on growing quality assets in response to strict risk-based regulations from the central bank.

The industry’s overall non-performing loans ratio declined to 13.6 percent from 14.2 percent the previous year. The average capital adequacy ratio index also improved from 17 percent to 18.6 percent following the final phase of the central bank’s directed recapitalisation by banks.

Total industry operating income for the year increased by 46 percent to GH¢3.2billion from GH¢2.6billion in 2011. Total operating expenses correspondingly increased by 30 percent to GH¢1.7billion, up from GH¢1.2billion in the previous year. Total provisions for credit impairment went up from GH¢192.7million in 2011 to GH¢309million in 2012.

Industry profit after tax more than doubled from GH¢472.7million to GH¢967.9million. However, return on equity was 23.8 percent; just 70 basis points above the Treasury bill rate by year-end.

“Profit performance over the past three years does not support the popular notion that banks in Ghana make abnormal profit,” Asare Akuffo, former president of the association and Managing Director of HFC Bank noted.

The balance sheet of the banking industry also strengthened as shareholders’ funds grew from GH¢2.7billion in 2011 to GH¢3.9billion in 2012, showing an increase of 44.3 percent.

Mr. Akuffo added that the association has adopted a new constitution with an expanded executive council of nine members that gives recognition to the influence of the largest banks in the industry, and with adequate representation also for the medium and small banks.

“The secretariat of the association will be resourced with economists and seasoned bankers to drive a more proactive agenda for the association. Members have already committed to provide the funding required for this new way forward. “We will continue to collaborate closely with the Financial Intelligence Centre and Economic and Organised Crime Office to combat money laundering and the financing of terrorism.

“After considerable consultations and discussions with Bank of Ghana, a uniform formula for determination of bank’s base lending rate has been agreed. Although not perfect, we believe it is far more objective and less subject to manipulations than the previous liberal regime of base rate determination,” he said.