Business Hilights
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Zenith, 6 other Nigerian banks in Ghana race to meet new minimum capital base

Following the recent upward review of banks’ minimum capital requirement for commercial Banks from ¢120 million to ¢400 million (about ($100 million or N30 billion) by the Bank of Ghana (BoG), Nigerian banks operating in the country have approached their Nigerian head office for assistance.

However, not all of them are currently under pressure to meet the new minimum capital base, as some had long surpassed the threshold.

Nigerian banks currently operating in Ghana include Access Bank, Ecobank, Fidelity Bank, GT Bank, Zenith Bank and United Bank of Africa.

Energy Bank which is not yet in Nigeria, but operates in Ghana is owned by a Nigerian, Barr. Jimoh Ibrahim from Ondo State.

According to the accounting firm, PriceWaterhouseCoopers, in real terms, the minimum capital of ¢60 million has significantly eroded as the cedi to dollar parity has declined from less than 1 to almost 4.5 times, hence the need for this review.

BoG has also hinted that part of the reasons for the increase is to align with plans to begin the implementation of Basel II for commercial banks in the country from next year.

Basel II is a new regulatory requirement for banks based on their risk and also an international business standard that requires financial institutions to maintain enough cash reserves to cover risks incurred by operations.

The Basel accords are a series of recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. This should mean that depending on the risk of each bank the capital requirement could be increased again.

Though details form BoG showed that it will reveal the way and manner commercial banks are to meet this new level on Monday next week, Business Hilights also gathered that Commercial banks would be given up till December 2018 to fully meet the new capital requirement.

The increase of 233 percent over the old capital level and would be the biggest capital increase witnessed over the banking landscape in Ghana.

BoG took the decision after extensive engagement with players in the industry and also current development in the economy, saying any bank that fails to meet the new capital levels by December 2018 could lose its license to operate in Ghana.

Before the increase

The Ghanaian Finance Minister, Ken Ofori Atta had earlier in an interview revealed that the commercial banks would be given up to one year to recapitalize, describing the capital raising as “substantial compared to what happened in Nigeria.”

In dollar terms, the proposed increase could be about $100 million.

During one of the final stakeholders’ meeting between BoG and commercial banks, just as some Managing Directors of commercial banks called for staggered capital base increase, majority argued that the capital review would affect most of the local banks, a development that could result in most of them “going down”.

A top official of the banks’ in Nigeria who barred his mind on grounds of anonymity said “Our branch in Ghana already met the new capital base, but am not sure all Nigerian banks in Ghana can make the new minimum base because business is no more rosy unlike last few years”.

“From what BoG has done, I think Ghana’s capital limit has surpassed the limit for certain grades of banking operations in Nigeria and it shows that their monetary policy machinery is proactive.

Analysts in Ghana say the latest increase is well over 234 percent and can be considered as the highest in the history of Ghanaian banking industry.

Business Hilights recalls that in line with the promulgation of the Banking Law 1989 (PNDCL 225), the first capital requirement was set at a minimum to paid-up capital equivalent to about $740,700.

But in 2003, the Bank of Ghana (BoG) issued a directive to commercial banks to increase their capital to a minimum of ¢7 million as part of measures to strengthen their capital base.

Also, in 2008, it increased the capital to ¢60 million in a bid to make the banks more resilient against unforeseen or expected losses.

BoG later proposed ¢120 million for new entrants and later asked the existing banks to increase their capital to that level.

In February this year, BoG gave some indications that it wants to raise the levels again.