2 October 2017

Ghana: New Banks Capital and Non-Performing Loans

If all 35 commercial and universal banks operating in the country are able to meet the Bank of Ghana's (BoG's) recapitalization regime, capital in the sector will see a jump to a whopping 14 billion Ghana Cedis by close of 2018.

The BoG has raised the capital requirement from GHC120 million to GHc400m and banks are expected to meet the new requirement by end of 2018.

According to financial experts, the new capital requirement, if met, will enable banks to write off large parts of their Non-Performing Loans (NPLs) existing on its books.

The central bank's new capitalization regime is also expected to cushion customers and further protect the various banks from losses.

In April 2016, the total capitalisation of banks was about GHC3.2bn, rising to 4.17 bn in April 2017.

But with a lot more capital, banks will have the capacity to write off bad assets that have plagued the sector, leading to the recent collapse of two banks - UT Bank and Capital Bank.

These were some key discussion points that arose at a discussion on the banking industry in Ghana, which was organized by the Institute of Financial and Economic Journalists (IFEJ), a grouping of journalists promoting financial sector issues.

Dr. John Gatsi, Head of the Department of Finance at the University of Cape Coast (UCC), in a presentation, said the 2007 and 2008 financial crisis in the United States of America is there for Ghana to learn from and to enable the central bank prevent it.

He said the key ingredient is the way the governor is going with enforcing the laws governing the sector to avoid a run on the banks in the country.

The attitude of the central bank is to help the various banks operating in the country come out of the trouble they have been in over the years, he said.

He stressed that in spite of all these, what is key was to ensure good corporate governance in all the operations of the banks.

Issues of the breaches of good corporate governance issues must be dealt with by the central bank while directors must be brought to book.

Dr. Adu Anane-Antwi, the immediate past Managing Director (MD) of Securities and Exchange Commission (SEC), said debt and bad loans are a challenge to the existing banks.

"Most of the debts on the banks list of Non-Performing Loans stem from the energy crisis.

"The NPLs arising out of these are quite high because of some breaches of corporate governance issues as well as conflict of interest," he observed.

Ekow Afedzie, Deputy Managing Director of Ghana Stock Exchange (GSE), called for more education on the operations of listed companies.

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