William Ato Essien
William Ato Essien, founder and Chief Executive Officer (CEO) of defunct Capital Bank yesterday admitted before an Accra High Court that the bank was insolvent prior to its takeover by the Bank of Ghana.
Mr. Essien, who is standing trial with two other people over alleged malpractices including stealing that led to the collapse of the bank, made the admission when he continued his examination-in-chief led by Baffuor Gyau Bonsu Ashia who held brief for Thaddeus Sory for the accused person.
According to Mr. Essien, Capital Bank at the time was performing below the capital adequacy ratio set by the central bank, admitting that “per the ratios from the central bank, we were insolvent.”
He, however, indicated that it is a normal occurrence for a bank to become insolvent and outlined three ways the bank was going to correct the insolvency before the take-over and said some of the solutions included the injection of more capital into the bank.
He also identified “classification of nonperforming loans will make room for significant improvement as far as our solvency status is concerned and finally, recovery from the bad bank to income surplus,” as the other two ways they intended to revive the insolvent bank.
He also told the court that inadequacy in capital ratio was the only problem that capital bank faced with respect to the bank of Ghana before its takeover.
Prosecutors have been pushing that the Bank of Ghana injected about GH¢620 million of taxpayers’ money as bailout into Capital Bank but the accused persons allegedly blew everything.
Bank Struggles
Mr. Essien, who was the Chief Executive Officer of Capital Bank between 2000 and 2015, and a member of the bank’s board, also told the court that the bank at the time was facing three major challenges.
“Capital Bank faced three major challenges. The first challenge was non-performing loans. The second was data integrity and the third was the toxic assets,” he indicated.
He went on to explain that the non-performing loans came about as a result of the migration and the peculiar circumstance under which Capital Bank had metamorphosed from a micro finance institution to a savings and loans company.
“The Central Bank issued us with a savings and loans licence not as a new company but as a going concern and as a result, our loans and advances as the micro finance and money lending level were taken and accepted as our capital. And so my Lord, when you are a savings and loans, the treatment and regulations from the Central Bank is totally different as opposed to when you are a money lending organisation and micro finance,” he said.
Data Integrity
Mr. Essien continued that the situation even grew worse when they became a universal bank because they were required to put aside 25% of their liabilities as prudential requirements.
“These three things: classification, regulated interest charge and demand for prudential requirements is what undermined all the efforts that we made to recover a principal amount of GH¢4.9 million out of the GH¢5.7 million, yet it didn’t make any significant difference because this has been accumulating interest upon interest. The only way we could have done that was to boost this GH¢5.7 million and treat it as a new loan at the end of every six months for this to remain current as per the classification,” he said.
He also told the court that as a bank, they could not continue on that tangent because they were no longer a micro finance and a savings and loans company but they had become a universal bank and therefore, the board and management of the bank took a decision to separate the data from 2000 up until 2012 so that they would have a clean slate to start a full banking operation.
“And my Lord, for that to happen, the integrity of the data has to be worked on. The data integrity therefore, directly connects to the desire of the board and the management to operate a universal bank as a universal bank and not to operate a universal bank as a savings and loans,” he said, adding “all the non-performing loans were going to be put in a box but it cannot be the case that you put the non-performing loans in a box without anybody owing that non-performing loans therefore, shareholders of the bank assumed the responsibility of these bad loans and that is what came to be known as shareholder loan and this time this stood at GH¢385 million.”
Toxic Assets
He said between 2013 and 2015 the bank’s total non-performing loans together with the shareholders by default loans had been put together to the tune GH¢620 million.
“So the non-performing loans had now produced a reclassification that had necessitated the separation of the bank’s operation from savings and loans from that of a universal bank. This GH¢620 million could not be provided for because if we did as a bank, the entire gains we had made was going to be wiped off. We therefore took two major decisions. The creation of a bad bank and a good bank, accounting principle that is universally accepted and used.”
He added that “this GH¢620 million toxic asset was going to be the basis for the creation of the bad bank. The second decision that the board and the management took with the central bank’s blessing was that shareholders will not take any dividend up until the entire bad bank was fully underwritten.”
Hearing continues on November 25.
BY Gibril Abdul Razak