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Mixed reactions greet new BoG minimum capital requirement

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Some financial observers have expressed mixed reactions to the Bank of Ghana’s decision to increase the minimum capital requirements for commercial banks.

Though they largely subscribe to the need to intensify the regulation of the banking sector, the analysts believe the central bank ought to do more to strengthen Ghana’s financial industry.

The concerns come days after it emerged that the Bank of Ghana has increased the minimum capital requirement of banks to 400 million cedis.

The official announcement is however expected to be made on Monday, September 11, 2017.

The decision to review the minimum capital requirement is backed by the provisions of Section 28 (2) of the Banks and Specialised Deposit Taking Institutions Act, 2016 (Act 930) which states that ‘The Bank of Ghana may prescribe different requirements under this section for different classes of specialised deposit-taking institutions.’

Mixed reactions from analysts

Financial Analyst and CEO of Sam Bed Consult, Sam Bediako Asante believes the figure is lower as it may least affect the attempts to achieve mergers and acquisitions.

He however admits that the increase should position banks to undertake high ticket transactions.

“In fact it is good for the country’s economy, I have always been saying that if the figure is high it will mean that we will be able to take on very big transactions then they will be able to compete globally like what some of the South African and Nigerian banks are doing.”

For Economist Dr. Lord Mensah of the University of Ghana Business School, the move poses a threat to the local economy as local banks are likely to be taken up by larger banks which will greatly distort government’s funding needs in the long run.

“At the end of the day, government has a policy and some of the ways or channels that they can make sure that they enhance their policies or the effectiveness of their policies are through the local banks. Now that you keep on increasing the minimum capital requirement you will end up having them folding up and some of them merging. So the concentration is going to be foreign dominated then you incapacitate the local banks.”

Meanwhile, Credit Consultant, Emmanuel Akrong believes having more capital helps banks better absorb adverse shocks and thus reduces the probability of financial distress and increases business confidence.

BoG increases minimum capital third time in a decade

The central bank’s new minimum capital requirement of 400 million cedis is the third over the last decade.

In 2008, the Bank of Ghana increased the minimum capital requirement for commercial banks by over 700 percent.

The figure was reviewed up to 60 million cedis from 7 million cedis.

Subsequently in 2012, commercial banks were expected to recapitalize to 120 million cedis; representing one hundred percent rise from the previous 60 million cedis.

This new figure of 400 million cedis represents 233 percent rise from the current 120 million cedis.

BoG gets tougher

But it appears the central bank has this time round become tougher in getting banks to meet the new capital requirement as it has emphasized its stance not to allow any bank to flout this directive.

Mr. Sam Bediako Asante also believes this could be achieved with the adoption of a pragmatic roadmap for the banks to comply with.

“Every quarter the banks should be able to meet a quarter of the new capital requirement so that come December 2018 they should meet the four hundred million Ghana cedis. But if not and they decide to wait till December 2018 for all of them to meet that figure and I think majority of them will also like to wait for that period for them to add up to whatever capital it is they have now,” he stressed.

Dr. Lord Mensah among others also wants the central bank to re-strategise and quicken the implementation of the Basel II and III which are a series of recommendations issued by the Basel Committee on Banking Supervision.

He argues this should rather position banks to be more compliant and withstand major shocks.

“For all this time, we are talking about six years so; in the end I believe that the Bank of Ghana has been sleeping and possibly it might be too late for it to introduce these Basel II and III regulations, so by the time you start introducing them, you have already folded up some local banks. So it’s my belief that they should wake up,” he asserted.

By: Pius Amihere Eduku/


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