Don’t prioritise over banks — Kwamina Asomaning
The Head of Corporate and Investment Banking at the Stanbic Bank Ghana, Mr Kwamina Asomaning, has objected to the idea to set a separate minimum capital requirement for local banks, describing the move as unsafe since it will set the precedent for local banks to fail.
Mr Asomaning said banks were asked to increase their minimum capital after the Asset Quality Review (AQR), which determined the levels of capital, showed that capital in the industry was low.
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“One of the interventions to curb this menace is to make sure that banks have a cushion to absorb losses.
“It will be unsafe for local banks to have a much lower level of cushion than foreign banks because, invariably, you are setting up the local banks to fail,” he stressed.
He added that a lot of banks that had failed over the years took shocks after customers were unable to repay their loans, while they did not have high levels of equity.
“If you look at the banking industry, a lot have taken losses; however, the ones that have struggled the most are the ones that couldn’t absorb the losses with their capital. Therefore, the Bank of Ghana (BoG) will be likely to have this problem recurring if they do not put all banks in an even queue and give them the same levels of equity,” he stated.
He said this in a separate interview regarding the need to set another capital requirement for the local banks after the GRAPHIC BUSINESS/Stanbic Bank Breakfast Meeting, the second of four to be held in the year, which took place at the Labadi Beach Hotel on May 15.
On the theme: “Liquidity and solvency management – boosting the health of banking in Ghana,” the meeting was aimed at engaging experts in the financial sector to deliberate on key issues affecting the banking industry and the economy as a whole.
Available interventions
Mr Asomaning, therefore, recommended to commercial banks that would likely be unable to meet the GH¢400 million minimum capital requirement set by the central bank to explore other financial interventions.
He said banks could either merge or give up their licences which allowed them to operate as a commercial bank and take the position of becoming other financial intermediaries, such as a savings and loans or a finance house since all those institutions functioned as banks.
“The only difference with these financial intermediaries are that they are not regulated as banks and so will not have the same GH¢400 million capital requirement and other prudential requirements as banks do have,” he added.
He, however, pointed out that banks that would not want to take these readily available interventions could as well look for other investors to pump additional money into their banks.
Adjustments in the banking sector
Aside from strengthening the internal and external controls of banks, such as adequate governance structures, risk management policies and procedures which encourage good banking business and practices, Mr Asomaning urged customers to have a paradigm shift in the way they transacted business with banks because “their action and inactions also affect banks.
“As the key function of the BoG to ensure that at all times, banks operate within the prudential requirements placed on them in order to safeguard the interests of their customers, customers also have the responsibility to have certain behavioural changes which help banks to ensure that the banking industry is stable and resilient,” he said.
He explained that some companies defaulted at the banks because of weak balance sheets and lots of mismatches in their borrowing.
He added that, “Companies borrowed in dollars while they earned in cedis; therefore, as the currency moved, it went against them.”
“Some companies too were just borrowing from several banks – hopping from bank to bank, which made them indebted to many banks.
“These are some of the behaviours customers need to shift from so as to see customers and entrepreneurs who will work together with regulations because the industry will not work just by changing regulations,” he indicated.