‘We Gave Banks More Room To Restructure’

Dr. Ernest Addison

BANK Governor Dr. Ernest Addison has explained how most local banks whose
licences were revoked were given ample time to right their wrongs but their
managements could simply not do so.  

at the 71st New Year School at the University of Ghana, Legon, he stated,
“From the initial briefing we received from technical assessments (Asset
Quality Reviews) carried out on banks in 2015 and updated in 2016 by our
Banking Supervision Department and international partners to establish the
solvency of the banking sector, UT Bank and Capital Bank were clearly
classified as deeply insolvent, while seven others had been identified as
severely undercapitalized.”

with these facts, the urgent focus of our initial policies was to design
credible plans for the resolution of the two insolvent banks to prevent
spillovers to the other banks and the broader economy. In addition, the other
undercapitalized banks were tasked to submit recapitalization plans and work to
implement same,” he added.

UT and Capital Bank

Addison explained, “Our immediate efforts to address the insolvency of UT Bank
and Capital Bank started with meetings with the shareholders and directors of
the two banks, where we shared with them the diagnosis of insolvency and
requested them to implement measures to quickly restore their capital adequacy
to prudential levels. We were not required to do so under the law, as the two
banks were already classified as insolvent by the technical assessment carried
out by BoG prior to the start of my administration. “Moreover, the Banks and
Specialised Deposit-Taking Institutions Act of 2016 (Act 930) required us to
revoke a banking licence once an institution reached the stage of insolvency.
Nevertheless, we gave these banks the opportunity to correct the insolvency and
tried to exhaust all the options.”

UT’s incredible plan

said UT bank submitted a capital restoration plan which was not credible,
essentially requiring government to take over the bank’s portfolio of bad debt
it had created through loans that were granted to certain borrowers sometimes
above regulatory limits, and that had become unrecoverable.

Search for buyers

continued that so bad was the financial condition of UT Bank that when BoG
engaged with other banks to explore whether they could acquire the bank and
rehabilitate it, they showed unwillingness; they had conducted their own
independent due diligence on the bank.

said one of such potential bank acquirers, after their due diligence exercise,
noted, “The poor quality of loans assets, potential tax liabilities, existing
litigation and demands by third party lenders for settlement of their accounts
make the acquisition of UT bank … a highly unattractive and risky proposition.”

Skeletons in cupboard

said such conclusion was arrived at based on the following factors: UT Bank had
not filed corporate tax returns since 2015, Asset Quality was extremely poor
with NPLs of 44 per cent, loans that had been classified as performing had not
been serviced for a year, indicating that the NPL ratio was
underestimated,  collateral security for
loans had not been perfected and in most of the cases, the security of loans
had not been stamped or registered, while the bank was in default of borrowing
from several international lenders including the IFC, DEG.

there was active litigation against the bank (valued at over GH¢170 million),
and the bank had excessive risk concentration to a few major depositors.

BY Samuel Boadi