Ghana’s impending mismatched banks

With just a couple of weeks to the Bank of Ghana’s deadline for the country’s universal banks to meet the new GHc400 million minimum capital requirement, several banks are now in belated, feverish efforts to consummate mergers aimed towards fulfilling that requirement.

This simply shows that the poor corporate governance quality that has afflicted much of Ghana’s banking industry has been accompanied by equally poor strategic management. From the moment the BoG announced the 233% increase in minimum capital requirement, it was clear to all stakeholders that consolidation in the form of mergers and acquisitions would be required and indeed the central bank never hid its desire for this to happen.

But rather than getting down to seek suitable partners, the smaller banks, primarily indigenously owned, went about lobbying government for an extension of the deadline instead, in order to enable them use retained earnings over the next five years, to meet the new minimum capital requirement.

The simple truth of this was that the owners of the smaller banks wanted to retain the irrespective equity stakes and consequent authority so that they could continue to misuse it for their own benefit.

The result of their ill-advised stance is that some of them are now involved in a race against time to consummate mergers before the deadline that will still not be enough to enable them meet the new capital requirement.

Even if they do manage to complete their mergers in time – or more likely convince the BoG to give them more time in order to do so – and are also able to raise the additional equity capital they would need, the resultant merged entities will be unwieldy banks, comprised of disparate parts. Here, the situation facing Consolidated Bank, the result of a merger between five very dissimilar banks,is very instructive. Combining banks with very different visions, target markets, processes and procedures, as well as product and service delivery systems is a most difficult proposition, one which is unlikely to produce optimal results.

This is why usually, banks looking to merge, deliberately seek compatible partners in these regards in order to achieve vertical integration; or seek partners that can complement each other to diversify their markets and achieve horizontal integration.

The mergers currently being rushed through are not aimed a any of these strategies. Rather they are simply the result of desperation by their owners to maintain some holdover an entity with a much-coveted banking license.

This is not what the BoG really wanted when it put the industry on the path to consolidation.

We are disappointed with the attitudes shown by the owners of some of Ghana’s banks and their current travails are entirely of their own making. If they had started looking for suitable partners right from the beginning, they would not have been in the frenzies they now find themselves in right now; after all they had time but wasted it going in obviously wrong directions.

For example,Energy Bank has entered merger negotiations with just days to the deadline, and armed with barely a fifth of the capital needed to stay in business, because it went after an Initial Public Offer for shares which never stood a realistic chance of succeeding. And when this was diplomatically pointed out, the bank’s executives rather went after the analysts who were pointing out the challenges,threatening them with legal action for daring to suggest that the IPO might not work out.

We hope such banks have learnt their lessons, even as we hope they will get through their current challenges successfully and become more strategically astute – and realistic – going forward.