Dr. Nii Kotei Dzani
IDEAL FINANCE’S high non-performing loans (NPLs) ratio of 23.2% was mainly attributed to poor credit risk management which put the deposits of its customers at risk.
A
report by the Bank of Ghana (BoG) which made this known said Ideal Finance,
which was part of the Ideal Group of companies belonging to Dr. Nii Kotei Dzani,
who is also a member of the Council of State, has been faced with severe
insolvency and liquidity challenges over the past two years.
The
BoG said it found key regulatory violations such as the adjusted net worth of
negative GH¢117.5 million as of the end of November 2018, indicating that the
paid-up capital violated Section 28(1) Act 930.
It
faces a significant capital shortfall with a Capital Adequacy Ratio (CAR) of
negative 33% in breach of the minimum required of 13%, with a corresponding
capital deficit of negative GH¢188,257,625.35.
It
is also facing a severe liquidity crisis with numerous complaints received by
the BoG from aggrieved customers who have been unable to access their deposits
with Ideal Finance for the past several months.
Failed Minimum Capital
It
has consistently failed to meet the minimum cash reserve requirement of 10% of
its total deposits.
Ideal
Finance shareholders have failed to restore the bank to the required regulatory
capital and liquidity levels in spite of long-standing promises that new
capital was expected from foreign investors according to the report.
Adjusted Capital
The
institution’s adjusted CAR of negative 32.8% as of the end of November 2018 is
in violation of Section 29(2) of Act 930.
Contrary
to section 64 (2) of the Banks and Specialised Deposit-Taking Institutions Act,
2016 (Act 930), Ideal Finance’s exposure to its related party has consistently
been above the regulatory limit of 25% of net own funds (NOF).
Exposures
to related parties (FirstTrust Savings & Loans and Ideal Capital partners)
were to the tune of GH¢63.19 million according to the report.
Unpublished Audited Accounts
“The
company is yet to publish its 2018 audited accounts contrary to section 90 (2)
of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930).
Furthermore, the company did not keep accounting records in a manner that gives
an accurate and reliable account of the transactions of the company, and did
not therefore show a true and fair view of its operations.
“Ideal
Finance has not submitted their returns since November 2018. All efforts to get
them to submit have proven futile. An ‘onsite’ examination carried out in
September 2017 revealed the institution did not appropriately classify fifteen
(15) impaired loan accounts in accordance with the requirements of the Bank of
Ghana’s Guide for Reporting Institutions, which resulted in an additional loan
loss provision of GH¢14,255,275.53.”
Over-Exposure
“The
institution was technically over-exposed to all its credit customers due to its
negative net own funds position which is in violation of Section 62(1) of Act 930.
3. Credit facilities granted to the affiliates of the company were not approved
by the board and the exposures were not reported to Bank of Ghana in breach of
Section 70(2) and 70(4) of Act 930. Total related party loans totalled GH¢52.70
million.”
Merger
In
a letter dated 25th June 2019, the BoG said it was notified of the intention to
merge the operations of Ideal Finance Limited (IFL) and FirsTrust Savings and
Loans Limited (FTSL).
A
review of the documents submitted in connection with the proposed merger and
all available records obtained from the two institutions revealed that the
shareholders’ funds of Ideal Finance Limited (IFL) and FirsTrust Savings and
Loans Limited (FTSL) as of March 2019 per the merger documents was negative
GH¢62.18 million and negative GH¢93.22 million respectively.
The
reported shareholders’ funds of IFL per the last submitted prudential returns
as of November 2018 were GH¢28.89 million.
This
was adjusted to negative GH¢117.50 million due to additional loan loss
provisions and impaired investments, resulting in a decline in the reported CAR
of 0.52% to negative 52.18%, indicating a capital deficit of GH¢171.92 million.
Shareholders’ Funds
Also,
the reported shareholders’ funds of FTSL per the prudential returns for May
2019 of negative GH¢99.46 million was adjusted to negative GH¢174.10 million
due to impaired investments, resulting in a further reduction in the CAR of
negative 48.67% to negative 132.96%, indicating a capital deficit of GH¢189.13
million.
The
CAR of the merged entity was, therefore, assessed to be negative 78.32%, with a
capital deficit of GH¢361.05 million. BoG could not accede to the request to
merge the operations of FirsTrust Savings and Loans Limited and Ideal Finance
Limited.
The cash reserve ratios of FTSL as of May 2019 was 0.07% compared to the regulatory minimum of 10%. Both institutions are unable to meet customer withdrawal needs and the BoG has received countless complaints from customers of both institutions about their inability to access their funds. The use of landed property to shore up capital for the emerging entity is considered unacceptable in the light of the insolvent and illiquid state of the two institutions.
By Samuel Boadi
