Bawumia, Addison oppose bank recapitalization extension date

Business News of Friday, 13 April 2018



Vice President Dr. Mahamudu Bawumia

It appears moves by the Association of Indigenous Banks to get President Akufo-Addo to extend the deadline date for the 400 million cedis capital requirement for banks may face serious hurdles as the move is opposed by Vice President Dr. Mahamudu Bawumia and Governor of the Bank of Ghana, Dr. Ernest Addison.

The association, made up of local banks presented a petition to the president on Thursday to extend the deadline date to 2022, but the president announced plans to set up a committee on 17th April to consider the issue.

The banks have warned that any attempt to implement the 2018 deadline date for meeting the capital requirement may force local banks to fall into the hands of foreign investors who have already made proposals to takeover some the local banks.

Dr. Bawumia and Dr. Addison argue

Minutes of the meeting sighted by Citi Business News captures Dr. Bawumia and Dr. Addison’s opposition to the idea of petitioning the president to extend the deadline date of the capital requirement.

According to them, local banks can merge to grow their capital base if they can form an Association of Indigenous Banks.

Dr. Addison, for example has consistently maintained that the banking system must be cleaned to safeguard the financial sector hence the central bank will implement the requirement per its time table.

At the last meeting with journalists to announce the policy rate, Dr. Addison stated that “a comprehensive asset quality review conducted by the Bank of Ghana in 2016 showed severe deterioration in asset quality in the banking sector”.

Buttressing their point with examples from Nigeria and Malaysia during the meeting, Dr. Bawumia and Dr. Addison argued that, local banks can consolidate to strengthen their position in the banking industry.

They added that local banks can easily merge in a short time to control a significant portion of the industry.

Local banks counter argument

But making a counter case, the association accused governments of contributing to the low capacity of local banks.

The pointed out that the penchants of government giving what they call ‘juicy contracts’ to foreign banks is the bane of local banks.

Also citing Malaysia and Nigeria as examples, they stated that governments in those countries make it a point to cede state contracts to local banks to boost their capacity.

They added that most of the foreign banks in Ghana are run by Ghanaians, hence governance is really the issue, not capital or capacity.

The association also shot down arguments of building the capacity of local banks to undertake big-ticket projects.

They maintained that not all local banks want to do big-ticket projects, explaining that they can be profitable once they identify unique areas to operate.

Local banks propose timetable

Per their petition, the local banks are pleading with the presidency to extend the deadline to December 31st, 2022.

By this, the banks have made proposals to provide 170 million cedis by end of 2018, 220 million cedis by end of 2019, 280 million cedis by end of 2020, 340 million by end of 2021, and 400 million cedis by 2022.

They warned that any attempt to implement the end of 2018 deadline, may force a takeover of all indigenous banks by foreign investors who have already made proposals to the local banks.

President forms committee

After the arguments, the president announced his decision to form a committee with three members from the Bank of Ghana, and three members from the Ministry of Finance with a chair from the presidency.

The committee is expected to submit its final report to the president on 26th May, 2018.

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