The Royal Bank wades into new recapitalisation policy - Suggests a different approach to keep banks afloat
The Chief Executive Officer of the Royal Bank, Mr Osei Asafo–Adjei, has suggested to the Bank of Ghana (BoG) to allow banks to recapitalise based on the nature of their business interest and not the blanket rule of having a minimum capital requirement for all players within the industry.
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According to him, banks would want to do big ticket to accommodate such transactions but “At the end of the day, the business focus of that particular bank must determine how much capital it should require”.
Mr Asafo-Adjei who made the suggestion at a media interaction with some select financial reporters in Accra on August 7, said, “Nonetheless, he assured the public that the Royal Bank will be in a position to recapitalise when BoG sets new limits for capitalization.”
Asked how the bank could recapitalise to meet the demands of the regulator he said: “We can recapitalise by falling on our shareholders to pump in more funds or invite other investors but merger deals are not on our books now.”
Minimum capital
The central bank has hinted on raising the new minimum capital requirement for commercial banks to GH¢260 from the present GH¢120 million.
Meanwhile the Bank of Ghana is currently waiting for government’s approval before it goes ahead to announce recapitalisation plans for the commercial banks.
The bank is expected to implement this after going through several scenarios presented to it by a committee established to look at the options of increasing the minimum capital for the banks.
Meanwhile, while the BoG prepares to announce the new capital requirement, some banks, particularly the wholly owned Ghanaian banks, are making a string case against such a move in view of its implications on their businesses.
Presently, there are some of the banks which are struggling to meet the GH¢120 million and, therefore, a further increase which is more than double what pertains now is likely to be extremely problematic for most of the wholly owned Ghanaian banks.
The principle
In spite of the suggestion made by the CEO, he agreed with the position of the central but in principle, saying it was a good idea because a well-capitalised banking sector provided a strong backbone to the economy.
He said the fear was that the industry might likely be overcapitalised and that might also have its implications on the banking sector and its players.
Mr Asafo-Adjei said the banking sector in Nigerian suffered a similar fate and that lesson should guide the country with its decision.
Financials
It has bounced from its loss-making position last year to profit ways in the first half of the year.
Its half-year unaudited financial account indicated that the bank posted a profit of GH¢2.6 million after tax, having recorded a heavy loss of GH¢38 million at the end of the 2016 financial year.
Mr Asafo-Adjei described the performance of the bank so far as most encouraging on the back of an anticipated loss of about GH¢8 million at the close of the year.
In explaining the reasons for the loss in 2016, he said this “was largely due to impairment of charges of GH¢68million that was recorded in 2016”.
“Our exposures to hard-hit sectors of the economy such as the construction and agriculture sectors adversely affected the bank’s asset quality and resulted in a rise in non-performing loans,” he said.
Subsequently, however, he said: “The bank demonstrated resilience in the face of a challenging macroeconomic environment which had a particular impact on the small and medium enterprise (SME) sector, the bank’s core client base.”
Mr Asafo-Adjei also noted that the bank successfully grew its interest income by 18 per cent, year on year, largely due to increases in loan and advances, adding that the growth in non-funded income also remained strong, rising by 20 per cent year on year on the back of increased trade transactions and expansion of the forex product offering.
According to him, the gradual decline in Treasury Bill rates has positively impacted “our cost of funds” while the bank also posted a 17 per cent year on year growth in loans and advances.
He further attributed the positive turn of events to increase in demand deposits which went up by 52 per cent and recoveries of some of the bad loans that the bank had provisioned for at the end of 2016.
“We have collected more than GH¢50 million and still pushing hard to collect the remaining amount after strengthening our risk management unit,” he said.
Three-pronged approach
On the way forward, he said: “Management has adopted a three-pronged approach to turn around the fortunes of the bank; focusing on recoveries, improving on asset quality and increasing operational efficiency and human capital.”
Mr Asafo-Adjei said the bank had set up a recovery department with the mandate to recover its non-performing loan portfolio, while it reviews and improves its credit policies to ensure that the loan asset created, going forward, was of the best quality. “Our strategy to improve efficiency is built on improving revenue through income diversification and reducing our cost of funds,” he said.
In this regard, Mr Asafo-Adjei said the bank would continue to grow its non-funded income by cementing the gains achieved in expanding its trade finance portfolio and increasing income from transactional banking obtained through the use of its well-established e-banking platforms and other innovations.
He admitted that the current situation would not be overturned overnight, but gave an assurance that management would consistently pursue growth and recovery.
Bank’s financial health
Mr Asafo-Adjei said the bank was in a sound financial position and “we are also very liquid”.
According to him, the bank had excess liquidity which it constantly released to its competitors on the interbank market and, therefore, rumours about the bank in financial distress were not accurate and must be disregarded.
He said the bank was ready for any leap forward and assured its customers and potential customers, as well as its shareholders that all efforts were being put in place to ensure that the “The Royal Bank” sustained its growth through sound and prudent management.
Bank’s base rate
On the bank’s high base rate, Mr Asafo Adjei said: “The bank was working hard to reduce its base rate.” He explained that “the base rate calculation includes a number of parameters but relies mainly on the bank’s nature and cost of deposits, which in the case of the Royal Bank is skewed towards more expensive deposits”.
Mr Asafo Adjei noted, however, that the bank is committed to putting in place measures to attract cheaper deposits to enable it to reduce its base rate before the end of the year”.