Bank depositors flee to “safety”

Over the past few weeks, depositors with universal banks in Ghana have shown increased nervousness with regards to the safety of their saving and investments, which is showing up in significant transfers of monies from one bank to another. Although no quantitative data is available, and indeed will not become available until banks announce their first half year financial statements for 2O18, several bankers privately admit to having noticed a significant trend in this regard.

Apparently, many depositors are moving their deposits from banks rumoured to be troubled, into the bigger banks whose financial solidity is not in doubt. Unfortunately though, depositors, lacking authenticated, up to date information as to the financial state of most banks, are being forced to make their decisions based on analyses in the media and sheer rumour.

Depositors’ nervousness is being attributed to recent negative developments in the banking industry – specifically the revocation of the licenses of both UT Bank and Capital Bank by the Bank of Ghana in August last year, and the recent entry of Unibank into official administration last month, a step which the central bank says it took to prevent that bank’s “imminent collapse.”

Gold Street Business has learnt that fixed deposits are the primary type of deposit being affected by this trend. As existing contracts mature, many fixed depositors are moving their funds elsewhere rather than simply rolling over as was often the case in the past. Instructively, such depositors are selecting new havens for their deposits based on perceived safety rather than the competitiveness of the interest rates being offered. Current and savings accounts are also being affected albeit to a much lesser degree.

Interestingly, while the revocation of the licenses of both UT Bank and Capital Bank, last year, set off some limited deposit movements from relatively small banks to relatively large ones, the revelations as to Unibank’s troubles have made depositors decisions more complicated since it suggests that size is no guarantee of financial solidity. Unibank, as at mid 2O17, was the largest privately owned indigenous bank in Ghana, adjudged by total assets. It is as yet uncertain whether the bank retained that pre-eminent position up to the end of last year.

Astute depositors are now looking increasingly to the key ratio used to measure a bank’s financial solidity – its capital adequacy ratio – in choosing where to keep their deposits. However even this is proving problematic. For instance while the BoG itself, had been claiming up to late last year, that all the banks in Ghana had CARs that were at least very close to the regulatory 1O percent minimum, it was subsequently revealed by the BoG last month that Unibank’s CAR had deteriorated to a negative 24 percent and had only been able to meet its obligations to depositors by utilizing Emergency Liquidity Assistance from the BoG to the tune of GHS2.2 billion.

All the while Unibank itself had been masking its true CAR without sanction from the BoG and depositors are worried that some other banks may be adopting the same tack. Neither the BoG nor others in the know are willing to make public the identities of the banks that are still troubled currently for fear of setting off a run on their deposits that would make their already difficult circumstances irredeemable.

Nevertheless, many major depositors are now looking more closely than ever before at the financial statements of the various banks that have been released over the past month or so. Under law, banks in Ghana have up to March 31, each year, to publish their financials for the previous year, although this year, as in past ones, not all of them have complied with this deadline.

Worryingly, while depositors now realize that size is not necessarily a measure of financial solidity, they have now come to the conclusion that foreign owned banks are generally safer than indigenously owned ones – a conclusion arrived at because all three banks that have been subject to regulatory action by the BoG over the past nine months have been indigenously owned and indeed, analysts have concluded that the troubles being experienced in the banking industry in recent times are primarily the result of poor corporate governance and imprudent financial management, both afflictions peculiar to local ownership.

As the end of 2O18 deadline for the recapitalization of banks to a minimum of GHS4OO million approaches, emerging news as to the ability or inability of various banks to meet the deadline, and the consequent mergers and acquisitions being anticipated, are expected to result in even more intense deposits mobility between the various banks.