Dr Kwabena Duffuor II, CEO of uniBank Ghana
The Bank of Ghana (BoG) announced yesterday that it had taken over the management of uniBank Ghana Limited to save it from imminent collapse.
It has appointed KPMG as an official administrator for uniBank effective 20th March, 2018. KPMG will be in-charge for six months after which it will return to private management.
But questions are being raised as to whether KPMG is the right choice, knowing that it has no track record of managing banks or huge assets like a bank.
This exercise, BoG said, was in accordance with Sections 107 and 108 of the Banks and Specialised Deposit-Taking Institutions Act 2016 (Act 930).
The decision came as a shock to industry players and customers, especially when about two weeks ago uniBank made an attempt to take over Agricultural Development Bank (ADB), which the BoG foiled.
uniBank is said to be financially distressed, making it difficult to comply with regulatory instructions.
However, there is no cause for alarm as depositors had been assured of the safety of their investments at the bank – one of the few indigenous financial institutions in the country.
Dr Ernest Addison, Governor of BoG, told the media that uniBank, adjudged the 6th best performing company in Ghana at the Ghana Club 100 awards in 2017, provided inaccurate data during the central bank’s efforts to resolve the problems confronting the bank last year.
He assured depositors that their money is safe, stressing, “We are not liquidating the bank; we are saving it.”
It’s the third local bank after UT Bank and Capital Bank, to be taken over by the Bank of Ghana. The last two were handed over to Ghana Commercial Bank (GCB Bank).
DAILY GUIDE has learnt that more local banks might go the same way following difficulties in recapitalization.
In the run-up to the 2016 elections, Vice President Mahamudu Bawumia raised the alarm bell, warning that about eight banks were on the verge of collapse – an indication that those banks were on BoG life-support mechanism. Two years after the warning, the chickens appear to be coming home to roost.
The Bank of Ghana appoints an Official Administrator to take official control of a bank when its capital adequacy ratio (CAR) has fallen below 50 percent of the required minimum of 10 percent (i.e. below 5 percent).
Interim Management
“KPMG, as Official Administrator, will assume control of the bank and all its branches and carry out the responsibilities of the shareholders, directors and key management personnel of uniBank with effect from today.
KPMG is expected to rehabilitate and return the bank to regulatory compliance and viability within a period of six months; at the end of which the bank would be returned to private ownership and management.
“During the period of official administration of uniBank, the bank will remain open for business under the management and control of KPMG overseen by the Bank of Ghana, and is not being closed or liquidated,” Dr Addison underscored.
Skeletons
uniBank’s problems are part of the legacy issues in the financial sector attributed to weak economic growth and poor corporate governance and risk management practices.
It would be recalled that uniBank was one of nine banks identified after the asset quality review exercise undertaken in 2016 to be significantly undercapitalized with a CAR of 4.75 percent.
As part of efforts to recapitalize the bank, BoG said uniBank submitted capital restoration plans to the Central Bank, which it implemented to increase its capital to 7.7 percent in August 2017.
However, subsequent reviews of uniBank’s books by Bank of Ghana’s supervision teams showed that the bank had not reported the state of its loan book accurately.
Insolvency
By October 2017, its CAR was estimated at negative 12.5 percent, making it technically insolvent.
By December 2017, its CAR had dropped further to negative 24 percent.
The bank also failed to submit its monthly returns to the Bank of Ghana for January and February 2018, and as a result, BoG had no evidence to suggest that uniBank’s CAR had been restored to the regulatory minimum of 10 percent.
“Efforts made by BoG’s supervisory teams who had visited the bank’s head office several times this month to obtain current information on the bank’s financial health, proved futile as the bank’s management failed to cooperate with the Bank of Ghana staff on site.
“The appointment of the official administrator has therefore become necessary due to the fact that uniBank has, among other things, persistently maintained a capital adequacy ratio (CAR) below zero (currently negative 24 percent), making it technically insolvent.
“This contravenes Section 29 of Act 930, which requires a minimum CAR of 10 percent to be maintained at all times, persistently suffered liquidity shortfalls and consistently breached its cash reserve requirement. As a result, uniBank had relied extensively on liquidity support (over GH$ 2.2 billion) from the Bank of Ghana over the past two years to meet its recurring liabilities. Among other things, a key shareholder of the bank managed to obtain liquidity support from the Bank of Ghana using third party banks as its agents,” according to the statement.
Under-estimation
The Bank of Ghana revealed that its exposure to the uniBank was therefore underestimated by nearly GH¢400 million, as that amount was not reflected in its books.
It also said uniBank conducted its credit administration in a manner that had jeopardized the interests of depositors and the financial sector as a whole.
It also failed to comply with a directive of the central bank, dated 26th October, 2017 under section 105 of Act 930, prohibiting the bank from granting new loans and incurring new capital expenditures.
Additionally, BoG said uniBank failed to comply with several other regulatory requirements, including lending to a number of borrowers in excess of its regulatory lending limit (single obligor limit) under Section 62 of the Banks and SDIs Act 2016 (Act 930); borrowing from the inter-bank market without the written approval of the Bank of Ghana when its CAR was less than the prescribed 10 percent in breach of Section 66(1) of Act 930.
Outsourcing
uniBank also outsourced a number of services provided by tellers, receptionists and security, to affiliate companies without the prior approval by the Bank of Ghana, contrary to Section 60 (12) of Act 930.
It also refused to cooperate with the Bank of Ghana in the performance of its supervisory responsibilities, including deliberately concealing some liabilities from its balance sheet, and failing to submit documents and records for supervisory inspection, and poor corporate governance, among others.
CAR Deterioration
“In spite of the Ministry of Finance recently agreeing to absorb a significant amount of the debts of government contractors owed to the bank to the tune of GH¢428,817,961 (backed by Interim Payment Certificates issued to contractors), the bank has not been able to address its capital deficiency, which has continued to deteriorate. Also, the bank engaged in significant transactions with its parent company and affiliate companie, including connected lending and other related party transactions without sufficient controls as required by law.
“Allowing the continuation of uniBank’s activities in their current form would be detrimental to the interests of depositors and the banking system as a whole. Several attempts by the Bank of Ghana to work together with management and shareholders of the bank to address the capital deficiency and liquidity challenges have failed to achieve the desired outcome, making the continuous reliance on Bank of Ghana for liquidity support unsustainable,” it added.
ADB Takeover
Recently, the bank’s announcement of a purported pledge of ADB Bank shares in its favour by its shareholders to secure commitments for recapitalization was deemed null and void by the Bank of Ghana since no prior approval had been obtained from the regulator.
By Melvin Tarlue