Ut, Capital Banks Takeover - in Whose Interest?

By Frederick ASIAMAH

DISCLAIMER: The contents of this piece have been put together purely from an independent perspective without prejudice to the regulators, the legal framework and the government or any other person or association.

The GCB takeover of UT and Capital banks saga refuses to go away, three weeks after it emerged.

This is because it is still difficult for many people to make sense of it. Secondly, all the goings-on in the economy leave so much room for conspiracy theories.

A key question is how strong and attractive is the GCB Bank brand ten years after becoming so distressed that it had to list on the Ghana Stock Exchange?

Indeed, the bank still has risks. In 2016, a study rated GCB behind UT bank as the riskiest indigenous Ghanaian banks listed on the GSE.

Comparing brands

So, a strong question on the minds of many is: how does the GCB brand compare with the ones it swallowed up?

A decade ago, GCB Bank was struggling for a new identity and survival. In May 2007 - prior to the devaluation of the cedi - GCB embarked on a voluntary recapitalization exercise to raise at least ¢450 million (GHC45,000) additional capital that was to ultimately enable GCB to boost its systems and operations, thereby enhancing the bank's capacity to compete effectively within the banking industry in Ghana and the sub-region.

Ten years on from 2007, the bank has been able to sustain itself on the Ghana Stock Exchange as well as get the public to accept its name as GCB Bank, instead of Ghana Commercial Bank.

Furthermore, GCB is still identified by overcrowding and protracted queues at majority of its branches nationwide. It is argued that this is one of the major headaches of clients who have been migrated automatically to the GCB following the takeover.

Besides these, has anybody monitored the Bank of Ghana's published financial institutions' Annual Percentage Rates (APR) and Average Interest (AI) paid on deposits? In fact, in the last one issued for July, before the takeover, GCB's AI paid on deposits (9.3%) trailed those of Capital Bank (13.5) and UT Bank (12.0). The trends for May and June were the same.

What does this mean? Have customers been migrated to a bank that will offer them lower interest rates than their banks of choice?

On the positive side, GCB seems to be doing something about the concern on overcrowding at its banking halls. In 2014, it was first runner-up in the Most Active E-zwich Bank in the Ghana Banking awards. A year later, GCB beat UT Bank to the Most Active E-zwich Bank award and repeated the feat this year.

Before its insolvency, UT Bank was acclaimed as the best in SME banking. Do you remember their mantra - A loan in 48 hours?

Recall that UT Bank Ghana Ltd (formerly UT financial service Ltd) commenced business as a finance house in 1997 under the name unique trust financial service ltd. It evolved from a lending institution to a universal bank through the acquisition of the former UT bank in June 2010 and got listed on the Ghana stock exchange under the name UT bank.

Without doubt, it positioned itself as a financial institution focused on lending that sought to change the face of banking in Ghana through the efficient delivery of products and services. UT Bank provided innovative customer-oriented products and services, focusing primarily on the financial needs of small and medium sized enterprises (SMEs).

One of the key things its customers will miss at GCB is mortgage facility. Indeed, the last publication on APR and AI highlighted that GCB did not offer mortgage while UT did.

Of the three banks involved in the takeover saga, Capital Bank appeared to have received little attention. Much of the focus has been on the identity of its shareholders.

But its fall from grace to grass has been dramatic in the sense that its romance with the banking sector lasted just under four years. This was a wholly-owned Ghanaian Bank that was given a class 1 universal banking license to operate as a Universal Bank effective August, 2013 after operating as a Savings & Loans company since the 29th of October, 2009.

Capital Bank's strategic focus was to provide timely and relevant financial solutions to the SME market.

Driving SMEs

So, two of the renowned banks that prioritised the needs of the SME sector have gone down in a year when SMEs are supposed to mine gold. This point is particularly relevant when looking back on the government's policy initiatives in the 2017 budget. Take, for instance, the announcement in the budget that this year, Gratis Foundation will continue to pursue its mandate to develop skills for self-employment opportunities by continuing the training for apprentices in metal machining and, welding and fabrication under the Ghana Regional Appropriate Technology Industrial Service (GRATIS).

As part of the activities to enhance the competitiveness of Small and Medium Enterprises (SMEs), National Board for Small Scale Industries (NBSSI) should assist Micro and Small Enterprises (MSEs) to access institutional credit while providing as well Business Development Service support for operators in the MSME sector.

What does this mean for GCB Bank? Will it position itself to do better business with SMEs?

Business environment

It is interesting that a lot of the discussion of the takeover has excluded an analysis of the business environment.

On the positive side, the most significant policy measure to the banking industry and consequently to other businesses is the abolishment of the 17.5% VAT/NHIL on financial services following the presentation of this year's budget.

The removal of the 17.5% VAT/NHIL on financial services would definitely encourage more people to carry out transactions with banks rather than using alternative means because of the hitherto relatively high cost of service charges on transactions due to the VAT/NHIL component on such charges.

Again it has the potential of saving businesses their costs in relation to banking services.

But can we avoid looking back on the impact of the debilitating power crisis that ran for about three years. We are told that this takeover issue had been on the table of the Bank of Ghana since 2015. Is that true?

Employee impact

It is expected that the collapse of UT and Capital banks will adversely affect employees. The estimates are that there are more than 900 workers whose livelihoods are at stake.

Going by global standards for making assumptions, if each worker has four dependents, then there are 3,600 livelihoods at stake here. All these livelihoods are at stake because the takeover was not a merger or acquisition by GCB bank.

Remember that GCB has wide branch network across the country and it is very likely that they may have branches in the same locations as these two failed banks. Therefore, chances of closing these branches and laying off the workers are very high.

So much for a moment that is supposed to be an age of job creation, isn't it?

Competition

This acquisition is undoubtedly a case of winner takes all. Per the communication from BoG, the development is in line with Section 123 of the new Banking Act, which states that when a bank is in distress, the Bank of Ghana revokes their license, appoints a receiver and then looks for a buyer.

But there are those who argue that though it is perfectly in the right of BoG to go on this tangent, the process could have been a lot more open to foster competition. Who knows if any of the shareholders in any of the distressed banks would have decided to independently raise funds to take majority shares? This argument, however wrong it may be, is coming up because there is a feeling that the whole act was carried out in secrecy.

Otherwise, why did it seem that shareholders, people in management and workers were all taken by surprise?

Impact on Ghanaian owned financial institutions

Meanwhile, suggestions that seven more banks could be liquidated in the course of time send shivers down the spines of local banks. Of course, indigenous banks are those who fear most.

Many of their shareholders would be pondering over what their fate would be. Would they be slandered like the Otabils and Amobengs? Will their treatment scare off Ghanaian investors? Think about the diasporans that we have all been persuading to return and invest in this land of gold.

Regulator and government

As we all await the final outcome of the takeover and measure the impact, it is important that the Bank of Ghana engages with all the stakeholders and related parties, especially the employees of the two failed banks and measures put in place to compensate duly all the staff who may be retrenched in the process.

On the part of government, it is too soon for it to forget its objective of building the most business-friendly and people-centred economy in Africa, which will translate into job creation and prosperity for all Ghanaians.

Have more questions been left unanswered? Certainly! The chief one is whose interest is served by this takeover?

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