Beige, Construction, Sovereign banks got licences under false pretenses - BoG

BY: Enoch Darfah Frimpong

The Bank of Ghana has explained that Beige, Sovereign and Construction banks obtained their banking licenses under false pretenses.

Explaining why the licenses of five banks have been revoked and consolidated to form the Consolidated Bank of Ghana Limited, the Governor of the BoG, Dr Ernest Addison said Beige Bank, Construction and Sovereign Bank’s licences “was obtained by false pretences through the use of suspicious and non-existent capital.” 

“Beige Bank and Construction Bank were each granted provisional licenses in 2016 and launched in 2017. Subsequent investigations conducted by the Bank of Ghana, revealed that similar to the case of Sovereign Bank, both banks obtained their banking licences under false pretenses through the use of suspicious and non-existent capital, which has resulted in a situation where their reported capital is inaccessible to them for their operations,” the BoG said.

Below is what the BoG said about the three banks in a press release

The Beige Bank Limited


The Beige Bank commenced banking operations in December 2017 after operating as a savings and loans company since [ ].

A special examination conducted by the Bank of Ghana into the affairs of the bank six months after the commencement of its operations, revealed that:

• Funds purportedly used by the bank’s parent company to recapitalize were sourced from the bank through an affiliate company and in violation with regulatory requirements for bank capital. In particular, an amount of GH¢163.47 million belonging to the bank was placed with one of its affiliate companies (an asset management company) and subsequently transferred to its parent company which in turn purported to reinvest it in the bank as part of the bank’s capital.

The placement by the bank with its affiliate company amounted to 86.86% of its net own funds as at end June 2018, thereby breaching the regulatory limit of 10%. Furthermore, the purported use of the same funds by the parent company of the bank to reinvest in the bank was in contravention of the Bank of Ghana’s requirements for bank capital. Also, the bank has not been able to recover these funds for its operations.

• The bank persistently breached the cash reserve requirement (CRR) of 10% (CRR at 23 July, 2018 was 1.97%) since the beginning of January 2018;

• The quality of the bank’s loan portfolio had seriously deteriorated resulting in a Non-Performing Loans Ratio (NPL) of 72.80%;

• The bank’s Capital Adequacy Ratio (CAR) was assessed to be negative 17.18% as against the regulatory minimum of 10%, thus, recording a capital deficit of GH¢159,162,557.64, rendering the bank insolvent.

Sovereign Bank Limited (“Sovereign”)

Sovereign Bank Limited was licensed as a universal bank in January 2016 and began operations in April 2016.

As part of Bank of Ghana’s investigations into the failure of Capital Bank Limited (currently in receivership), it emerged that Sovereign Bank’s initial capital contributed by its shareholders was funded from transfers from Capital Bank which had been presented to the Bank of Ghana as investments on behalf of the bank. Subsequent to its licensing, a substantial amount of the bank’s capital was placed with another financial institution as an investment for the bank.

The bank has however not been able to retrieve this amount from the investment firm with which it was placed, and it has emerged that the investments were liquidated by the shareholders and parties related to them. Following enquiries by the Bank of Ghana, the promoters of the bank admitted that they did not pay for the shares they acquired in the bank.

The promoters of the bank have since surrendered their shares to the bank, while the directors representing those original shareholders have since resigned. In April 2018, the Bank of Ghana appointed an Advisor to advise the management of the bank with a view to improving the affairs of the bank.

Following further deterioration in the capital of the bank due to its inability to recover the investments placed with financial institutions, as well as impairments to its loan book, its capital adequacy ratio is currently negative 11.

The Bank of Ghana has concluded that Sovereign Bank is insolvent, and that there is no reasonable prospect of a return to viability.

The bank is unable to meet daily obligations as they fall due. Liquidity support granted so far to the bank amounts to GH¢12 million as of May 2018.

The bank has not been able to publish its audited accounts for end-December, 2017 breaching section 90 (2) of Act 930.

The bank’s current situation has resulted in persistent breaches of key regulatory requirements and prudential limits.

The Construction Bank Limited (“Construction Bank”)

Construction Bank was licensed in May 2017 and commenced operations in December 2017. In the course of the official administration of uniBank, the Bank of Ghana discovered certain transactions involving Construction Bank. Further investigations revealed that:

• the initial minimum paid up capital of the bank provided by its promoter/shareholder, was funded by loans obtained from NIB Bank Limited (GH¢34

million) and uniBank (Ghana) Limited (GH¢61.00 million), contrary to section 9 (d) of Act 930;

• An amount of GH¢80 million out of the amounts reported as the bank’s paid up capital and purportedly placed with NIB and uniBank, remains inaccessible to the bank;

• The bank’s inability to inject additional capital to restore its capital adequacy to the minimum capital of GH¢ 120 million required at the date of licensing threatens the safety of depositors’ funds and the stability of the banking system.

Owing to the bank’s inability to access investments purportedly made in its name with other financial institutions, the Bank of Ghana has concluded that a total of GH¢80 million of the bank’s GH¢120 million initial paid up capital is unavailable to the bank for its operations, leaving an amount of GH¢ 40 million (one-third of the minimum capital of GH¢ 120 million).

The Bank of Ghana has since requested the bank’s shareholder to recapitalize it to the minimum capital required at the time of its licensing. While the shareholder submitted plans to the Bank of Ghana, these plans have not yielded any success.