Interview: Bank of Ghana's minimum capital requirement may kill local banks
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E-mail Xinhua, April 27, 2013
A Ghanaian banker has expressed misgivings recently about the minimum capital requirements imposed on local banks by the central bank, Bank of Ghana.
Group Managing Director of UT Bank Ghana and UT Holdings Prince Kofi Amoabeng contended that the increase in capital requirement from 10,000 Ghana cedis or 5,263 U.S. dollars in 2008 to the current 60 million Ghana cedis or 31.5 million U.S. dollars could stifle the growth of local banks.
Amoabeng explained to Xinhua in an interview that banks need time to grow but the minimum capital requirements have prevented them from expanding, especially into other West African and African markets.
Under the directive, banks with local majority share ownership will have to attain a capitalization of at least 25 million cedis or 13.1 million U.S. dollars by the end of 2010 and 60 million cedis or 31.5 million U.S. dollars by the end of 2012.
"When we started operations, the minimum capital was the equivalent of 10,000 cedis but we were able to stay within regulatory limits and grow the business truly until we got listed.
"I think there are other ways of regulating the banks," Amoabeng argued.
He believed that UT Bank's growth story is a clear demonstration that there are other ways, apart from regulating banks, to make them grow and compete well with their foreign counterparts which have been flooding the Ghanaian financial market.
A few local banks which have difficulty in meeting the minimum capital requirements have to cede some equity to some foreign banks to stay afloat.
While ECOBANK bought fully The Trust Bank (TTB), HFC Bank ceded 9 percent of its shares to the Republic Bank of Trinidad and Tobago for 8 million U.S. dollars.
Out of the 28 banks in Ghana, 11 of them are foreign banks while the Bank of America is knocking on the doors of the country's regulators for a universal license.
The Bank of Ghana said the increase in the minimum capital requirement, introduced in the aftermath of the world financial crisis, is to allow the banking system to be re-capitalized to support its strategies of deepening the financial sector for accelerated growth.
However, Amoabeng believed that increasing capital requirements was not the right way to help banks to deepen their operations.
"If the government wants to grow Ghanaian banks, they can actually legislate that government money should stay with Ghanaian banks. I think this is a nationalistic stance government should take; then the local banks will have the necessary capital to do business and grow," he said.
The CEO, who won the coveted Most Respected CEO of the year for 2011 in Ghana, added: "Don't use capital to cut off banks. Non- bank financial services need time to grow so they need capital."
Amoabeng, who is also CEO of the Ghana Association of Bankers, explained that, without due recognition at home, Ghanaian banks could not venture into other countries where the economies are larger with higher minimum capital requirements.
He confirmed to Xinhua, however, that all the indigenous banks had complied fully with the central bank's minimum capital requirements as at the deadline of December 31, 2012.
Executive Director of leading economic think-tank in Ghana, Center for Policy Analysis (CEPA) Joe Abbey believed the minimum capital requirements were fixed by regulators in various jurisdictions based on prevailing circumstances.
Abbey conceded that some operators would have issues with the size of this requirement, which for some would be too large and others too small, adding that it is necessary to serve as a shock absorber when these banks fall into difficulties.
He said the requirement would also keep increasing as the economy continues to expand and local banks venture into larger business undertakings, especially in the oil and gas sector. Endi
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