BoG develops guideline on M&As for banks

BY: Maxwell Akalaare Adombila
Dr Ernest Addison — The Governor, Bank of Ghana
Dr Ernest Addison — The Governor, Bank of Ghana

The Bank of Ghana (BoG) is developing a guideline on mergers and acquisitions (M&As) to help assist banks looking to consolidate their operations into one entity.

The guideline is expected to be operational later this year after which it will serve as a template for interested banks and their shareholders in negotiating and executing M&As deals.

It will also serve as a guideline in the approval or rejection of such deals.

In a letter sent to the International Monetary Fund (IMF) ahead of the fifth and sixth reviews under the extended credit facility (ECF), the Minister of Finance, Mr Ken Ofori-Atta, and the Governor of the BoG, Dr Ernest Addison, said, “The BoG’s management is considering a draft guideline to offer guidance to the industry on the BoG’s requirements for M&A applications.

“The BoG has initiated action towards building capacity in this regard to efficiently guide the review and appraisal of potential M&A applications,” it added.

It explained that the proposed guideline was part of efforts by the central bank to help banks meet the GH¢400 million minimum capital by the December 2018 deadline.

After reviewing the plans of banks for meeting the new minimum the capital requirement, the letter said BoG was now working at “strengthening the prudential framework governing bank mergers and expects to provide further guidance on the procedure for processing applications and the factors that will be reviewed”.

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Tighten screws

After announcing a new minimum capital of GH¢400 million to be met by banks by December, this year, the BoG requested that banks submit their capital restoration and recapitalisation plans for review.

With that done and approved by the central bank, it is now understood that such included anticipated mergers, hence the decision by the regulator to develop a guideline that will help streamline such consolidations.

While commending the central bank’s plan, an investment banker and the Chief Executive Officer of C-NERGY, Mr Michael Cobblah, said he expected the document to “tighten the screws” around M&A transactions in the country.

Given that the recapitalisation directive will lead to M&As, Mr Cobblah, who led a team of advisors from Ecobank Development Corporation (EDC) Limited to acquire and integrate the erstwhile The Trust Bank (TTB) into Ecobank Ghana Limited, said a guideline on M&As would ensure that “the regulator is not ambushed”.

“I am sure BoG is just trying to tidy up the situation. The financial market is very sensitive and you want to be sure that nothing takes you by surprise,” he said.

He explained that the current void around M&A transactions in the country allowed interested parties to rely on their own instincts which could be subjected to abuse.

In the case of the Ecobank, TTB acquisition, he said EDC on its own volition “walked the regulator through the process” to ensure that it was on the same page.

Past deals

Since 2010, about six acquisitions have occurred in the banking sector, with the most recent being the takeover of the HFC Bank by the Republic Bank of Trinidad and Tobago.

Before that, the following acquisitions had taken place: Bank of Africa and Amalgamated Bank, Ecobank Ghana and TTB, Access Bank and Intercontinental Bank, First Bank of Nigeria and International Commercial Bank and Fortis and Merchant Bank, which gave birth to today’s Universal Merchant Bank (UMB).