Recapitalization Of Banks And Its Impact On Our Economy

On the 11th of September, 2017, the Bank of Ghana notified banks and the general public on its decision to review upwards the minimum paid-up capital requirement from 120 million cedis to 400 million cedis as part of a holistic financial sector reform plan to further develop, strengthen and modernize the financial sector to support the government’s economic growth vision and transformation agenda.
The increment was about two hundred and thirty-three-point three three percent. The notice was met with public outcry and mixed reactions especially from the banks in Ghana. For instance, a Financial Analyst Sam Bediako Asante said the figure is lower as it may least affect the attempts to achieve mergers and acquisitions.
However, another Economist at the University of Ghana Business School Dr. Lord Mensah said the move poses a threat to the local economy as local banks are likely to be taken up by larger banks which will greatly distort government’s funding needs in the long run.
There was another view that the increment in the minimum capital will help banks better absorb adverse shocks and reduce the probability of financial distress thereby increasing business confidence. But at long last, the roller-coaster banking reforms and the recapitalization ride which saw the collapse and revocation of the licenses of about 9 banks is over with 23 out of 34 banks emerging successful.
The Bank of Ghana in a statement released about two weeks ago, said among the 23 banks that have met the minimum paid-up capital requirement, 16 sailed through with an injection of a fresh capital and capitalization of income surplus.
Three banks resulting out of mergers also sailed through and 5 indigenous banks sailed through with an injection of fresh equity capital from some private pension funds through a special purpose holding company called Ghana Amalgamated Trust Limited.
Sadly, all the nine collapsed banks in the country are indigenous banks and this has become a setback towards efforts at promoting indigenous Ghanaians to take control of our economy by building strong local institutions.
Apart from the fact that thousands of Ghanaians have been rendered unemployed, the innocent taxpayer has been saddled with about 12 billion cedis debt for the cleaning of the mess caused by the collapse of the indigenous banks.
Surprisingly, in all this mess created by some self-seeking board of directors, shareholders and managers of the collapsed banks, no single person has been prosecuted. Again, Bank of Ghana officials who abandoned their supervisory roles or clandestinely licensed banks with questionable capital sources are yet to face the full rigors of the law.
Let’s hope that the Head of Banking Supervision Osei Gyasi’s promise that the Central Bank officials who are complicit in the liquidation of some banks will be punished is carried through swiftly.
Finally, it is hoped that the minimum capital directive will strengthen and make the banking sector more resilient to shocks as well as foster stronger corporate governance structures and risk management systems and practices. Confidence in the banking sector will thus be restored and maintained.
Surely, this roller-coaster ride will lead us to a fulfilling destination. The banking sector must succeed.


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