Indigenous banks are in for a tough time as analysis conducted on their latest financial results indicates that they need to raise as much as GH¢4billion to meet the central bank’s GH¢400 million minimum capital requirement.

Out of the 16 Ghanaian-owned banks analysed by financial analyst and credit consultant Emmanuel Akrong, Royal Bank – based on its 2016 financial results – has a GH¢346million capital shortfall.

CAL Bank, which announced that it is not paying dividends to shareholders for the 2017 financial year in order to meet the GH¢400million minimum capital, has a shortfall of GH¢59.8million – the lowest among the local banks.

The analysis indicates that GCB Bank is the only local bank to have met the central bank’s requirement.

Prudential Bank, UMB, ADB and NIB all have capital shortfalls in excess of GH¢300million, while Fidelity, CAL, Sovereign, Premium, GN, Omni, Heritage, Construction and GHL Banks all have shortfalls of below GH¢300million.

These shortfalls, coupled with Governor Addison’s pledge to sanitise the banking industry following years of what he has often described as weak or lax regulatory function, could be pushing some banks to the brink amid reports that local banks have petitioned the presidency to urge the central bank to reconsider its December 2018 deadline.

Speaking at last month’s MPC press meeting, the BoG Governor did little to assuage fears of the domestic banks – revoking two local banks’ licences and putting one under administration.

“The indigenous banks are improving and trying to rebuild capital. Obviously, we have a number of them that are smaller so we expect they will consolidate. As part of the broader recapitalisation process for 2018, we expect that the smaller indigenous banks will, in a sense, come together and become stronger.

“We’ve also put out new guidelines for corporate governance, which should help improve governance structures particularly in the indigenous Ghanaian banks,” the Governor told the press.



Local vs Foreign banks

Emmanuel Akrong’s analysis looked at the performance of local banks (16) and foreign-controlled ones (17) from 2012-2016.

Some of the key findings from the analysis are that in terms of market share, foreign-owned banks play a dominant role in the banking sector. On average, foreign-owned banks account for 57 percent of total banking assets, 69 percent of off-balance sheet items, 60 percent of total loans, 58 percent of total banking deposit, 64% of tier-1 capital and 64% of shareholders’ equity in Ghana.

On balance sheet structure, foreign banks on average maintain higher shares of liquid assets and high levels of demand deposits while foreign banks may have low cost of funding than domestic banks.

More importantly, domestically-controlled banks manifest consistently stronger average loan growth than foreign-controlled banks, leading to more potential asset-quality issues than foreign owned banks, Emmanuel Akrong found.

This finding compares favourably with an assertion made by the International Monetary Fund (IMF), which said in a paper on disadvantages of foreign-owned banks that this can lead to reduced access to finance for a majority of domestic firms and consumers if they only concentrate on the least-risky and most transparent segment of the market.