BoG raises minimum capital requirement

Story: Lloyd Evans & Boahene Asamoah

THE BANK of Ghana has presented proposals to all banks for their re-capitalisation from the present level of GH¢7 million (¢70 billion) to between GH¢50 to GH¢60 million (¢500 billion to ¢600 billion)
The porposal also seeks to increase the minimum capital requirements for deposit taking and non bank financial institutions and finance houses from GH¢1 million and GH¢1.5 million (¢10 billion and ¢15 billion) to between GH¢5 and GH¢8 million (¢50 and ¢80 billion).
The Bank of Ghana has therefore called on banks and deposit taking non- bank financial institutions to submit capitalisation plans by the end of June 2008.
This means that banks and deposit taking financial institutions will now have either to merge or raise more funds through equity participation.
The Bank of Ghana said the existing capital base of most of the banks constrained them in taking advantage of new opportunities in the banking industry and were not strong enough to syndicate for major international contracts being undertaken in the counry.
“Syndication has not proved to be successful in providing the needed capital cover for these new businesses, in part because each of the banks does not have adequate financial strength to support such syndication”, the proposal stated.
The proposal under the Bank of Ghana Consultation Paper which is posted on the website of the central bank is titled “Building a Financial Sector for an Emerging Market Economy-Implications for the capitalisation of Banks and Non-Bank Financial Institutions”
The Bank of Ghana said with all the reforms and the liberalisation of the banking industry, a cluster of banks had emerged with relatively low capital base and depth that are inadequate to support significant levels of lending and therefore could be more vulnerable to minor swings in macroeconomic fundamentals.
According to the bank the Ghanaian economy was growing very fast and becoming increasingly complex with high value financial transactions which were likely to result in high risk cost in the near future and this called for very robust and strong banks.
“The economy is also getting increasingly integrated with the global economy. While these developments are opening up opportunities for banks, they also expose banks to more risks”. the Bank of Ghana added.
The proposal said the integration of the Ghanaian financial system with the global economy suggests that the new Foreign Exchange Act will provide opportunities for banks and non bank financial institutions and this was likely to bring in their wake higher risks which have to be cushioned by banks.
It added that the review of the Non-Bank Financial Intermediary Law will also provide a wider scope of activities for deposit -taking non- bank financial institutions and finance houses, as these opportunities will expose them to higher risks which have to be covered by adequate capital.
As part of the process of liberalisation, the Bank of Ghana introduced “universal banking” in the first quarter of 2003 which allowed banks to undertake, commercial, development, investment or merchant banking without the need for separate licences. This development, however, is related to one’s capital resources as one would be assuming more risks with the expected expansion and so the need to be well resourced to do so.
As a further step to the liberalisation process the Bank of Ghana rationalised the minimum reserve requirements for banks, introduced new financial instruments, and opened market operations for liquidity management.
The Banking Act empowered the central bank to complement these policies by improving the soundness of the banking system, the regulatory framework, and strengthening banking supervision, and improving the efficiency and profitability of banks, including the replacement of their non-performing assets all in a bid to ensure a very strong and vibrant banking industry in the country.