Ghana raises minimum capital for banks to US$90m (N32.95bn)
September 14, 2017 | 4:43 am| | | Start Conversation
Ghana’s Central Bank, the Bank of Ghana (BOG) has raised the minimum capital required for banks three-fold, to 400 million cedis ($90.2 million or N32.95 billion) as part of measures to ensure financial stability, its spokesman said on Tuesday. The new minimum capital requirement for Ghanaian banks is higher than the N25 billion minimum capital for Nigerian banks.
This new capital will impact on the operations of several Nigerian banks operating in the West African country. United Bank for Africa (UBA), Zenith Bank Plc, Access Bank Plc, First Bank Plc and Ecobank all have operations in the West African country.
“UBA Ghana is a very strong and profitable business with a strong internally generated capital. The timeline gives UBA Ghana enough time to explore various options to meet the new capital requirement. We are confident that other investors, if need be, would be interested in being part of the business if new capital needs to be raised” said Rasaq Abiola, Head of Investor Relations at UBA Plc.
“With immediate effect, the Bank of Ghana has set out a new minimum capital requirement of 400 million cedis for banks, as part of a holistic financial sector reform,” Bernard Otabil said.
Analysis by Ecobank Research estimated that banks in Ghana will need to raise approximately US$2 billion (N400 billion) over the next 18 months, in order to meet the new capital requirement.
This is expected to lead to forced mergers and acquisitions in the Ghanaian banking industry, as it happened in Nigeria, when the country implemented a similar exercise in 2004.
But analysts at Ecobank Research note that “Four banks, namely Ecobank, GCB, Barclays and Zenith Bank may not need to raise fresh capital, if they elect to capitalise their revenue reserves.”
Analysts at Ecobank Research also note that, “Given the short compliance period, we believe this directive presents an uphill task for a number of players-especially the smaller Tier III banks. Consequently, we hold the view that this move by the apex bank has the potential to trigger mergers and acquisitions in the Ghanaian banking sector.”
The previous capital requirement for Ghanaian banks and new entrants was 120 million cedis. The new increase took effect from September 11 and that the banks have up to the end of 2018 to meet them. Though some analysts believe that based on past experience, this timeline may be extended.
The Central bank last month revoked the licenses of two banks and transferred their deposits and selected assets to state-owned GCB Bank, in order to protect financial stability.
The new government of Nana Akufo-Addo has vowed to restore financial stability and fiscal discipline to stabilise the major commodity exporter’s economy. Ghana has been dogged by high public debt and budget deficits, forcing it to sign a credit programme with the IMF in 2015.
“Going forward, banks will require a more sophisticated and robust capital framework … consistent with the growing risks … banks are currently facing,” a statement by the regulator, seen by Reuters said.
This is the third hike in capital by the Bank of Ghana. In 2008, the BoG hiked its core capital regime from GH¢7mn to GH¢60mn with a four-year compliance period. In 2013, the apex bank doubled the minimum capital requirement for new entrants from the GH¢60mn to GH¢120mn.
However, the hike applied to new licences and existing banks were not be pressured to raise their minimum capital to GH¢120mn within a specified period; rather, they were allowed to gradually raise their capital levels towards the GH¢120mn target, based on their financing needs and risks.
By the close of 2016, only ten banks had achieved the GH¢120mn target, according to an investment note by Ecobank Research.
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