Those who though that the profound, bold, and direly needed restructuring of Ghana’s banking industry – which has culminated in the last round of license revocations for reasons of insolvency and false financial reporting; a voluntary liquidation; a downgrade to savings and loans company status; three mergers; and the injection of new equity capital into five banks by some private pensions funds – has been completed with the announcement by the Bank of Ghana at the start of this year to that effect, are now being forced to think again.
First it has emerged that at least two of the three mergers still have some way to go, enabling the two banks that are about to be acquired to continue operating under their own identities for now despite having far less than the new GHc400 million minimum capital requirement. This however can be allowed on the basis that the mergers are certain to be completed sooner than later.
But another bigger, heavier spanner has now been thrown into the BoG’s works. This is the denial by the association of private pension funds that any of its members have committed to injecting any equity finance into the five banks which both the central bank and the Ministry of Finance claimed are the beneficiaries of such under the auspices of a new special purpose vehicle, known as the Ghana Amalgamated Trust, GAT.
To be sure there have been doubts as to the completion of the GAT financing deal over the past fortnight. Some critics have uncharitably ascribed the refusal of both BoG and Ministry of Finance officials to name the specific private pension funds involved in the new financing to the “fact” that no commitments have yet been secured. Others, ascribe this refusal to the “fact” that the private pension funds that had originally agreed to put up the funds are now back peddling in the face of resistance to the move by organized labour unions whose members are major contributors to those pension schemes.
Add to this critics who point out that such equity investments would be illegal in view of the regulatory restraints put on private pension funds with regards to equity investments in companies not listed on the Ghana Stock Exchange; and still more critics who argue that in its current form, the new equity funding is in actual fact debt financing – since the pension funds are supposed to buy into bonds to be issued by GAT in order to provide the requisite finance -and this is disallowed by banking regulations as implemented by the BoG.
Put together, all these hurdles seem too many to cross, and the GAT initiative is looking increasingly unlikely to practicalize.
Thus the worry that the whole GAT announcement has simply been used to keep undercapitalized banks in business temporarily while the initiative is cobbled together, now seems to be replaced by worries that both government and the BoG will have to find another source of direly needed equity capital.
Whatever the case is, we believe that both institutions of state need to preserve their credibility and dignity by coming clean on what the real situation is. Only then can proponents of the BoG’s still uncompleted recapitalization exercise, such as this newspaper, provide their support towards a solution that will actually work.