Banks In Receivership
Background Information
Bank of Ghana (BoG) on 1 August 2018 revoked the banking licences of uniBank Ghana Limited (uniBank), The Royal Bank Limited (TRB), The Beige Bank Limited (Beige Bank), Sovereign Bank Limited (Sovereign Bank), and The Construction Bank Ghana Limited (TCB) and placed them in receivership in accordance with the Banks and Specialised Deposit-Taking Institutions (BSDI) Act, 2016 (Act 930). Further to the above, BoG appointed Nii Amanor Dodoo as the Receiver of the above mentioned banks in line with Section 123 of the BSDI Act 930 and approved the transfer of all validated deposits, selected assets and selected liabilities of the defunct banks to a newly formed bank, The Consolidated Bank Ghana Limited – CBG, through purchase and assumption agreements.
Circumstances leading to the revocation of the licences of the banks by Bank of Ghana
Incorporated in 1997, uniBank received its banking license in 2001 and started offering financial services primarily to individual customers and small and medium-sized enterprises. Reasons cited by Bank of Ghana for the revocation of the bank’s licence included the following:
- uniBank had given out amounts totalling GH¢1.6 billion to shareholders and related parties in the form of loans and advances without due process and in breach of relevant provisions of Act 930. In addition, shareholders and related parties had also been given amounts totalling GH¢3.7 billion which were neither granted through the normal credit delivery process nor reported as part of the bank’s loan portfolio. They were also not secured with collateral, and attracted no interest income for uniBank. Altogether, shareholders and related parties of uniBank had taken out an amount of GH¢5.3 billion, constituting 75 percent of total assets of the bank;
- Out of total customer deposits of GH¢4.3 billion, GH¢2.3 billion was not disclosed to the Bank of Ghana. Loans and advances to customers were also overstated by GH¢1.3 billion in prudential returns to the Bank of Ghana;
- Over 89% of uniBank’s loans and advances book of GH¢3.74 billion as of 31st May 2018 was classified as non-performing, in addition to amounts totalling GH¢3.7 billion given out to shareholders and related parties which were not reported as part of the bank’s loan portfolio;
- After making allowances for impairments to recognise the deterioration in the quality of uniBank’s assets and other requirements under Bank of Ghana’s capital adequacy framework, uniBank was balance sheet insolvent with negative shareholders’ funds of GH¢6.78 billion as at 31 May 2018 (representing assets of GH¢ 2.38 billion less liabilities of GH¢9.15 billion);
- The bank therefore had a capital deficit of GH¢7.4 billion, compared to the regulatory minimum of GH¢ 400 million;
- After making adjustments to uniBank’s balance sheet to offset outstanding debts totalling GH¢ 428,817,961 owed it by Government contractors (backed by Interim Payment Certificates issued by the Government), the bank’s liabilities (including an amount of GH¢ 3.04 billion owed to the Bank of Ghana) remain significantly more than its assets, and is therefore insolvent.
The Beige Bank commenced banking operations in December 2017 after operating as a savings and loans company.
A special examination conducted by Bank of Ghana into the affairs of the bank six months after the commencement of its operations, revealed that:
- Funds purportedly used by the bank’s parent company to recapitalize the bank were sourced from the bank through an affiliate company in violation of regulatory requirements for bank capital. In particular, an amount of GH¢163.47 million belonging to the bank was placed with one of its affiliate companies (an asset management company) and subsequently transferred to its parent company which in turn purported to reinvest the amounts so transferred in the bank as part of the bank’s capital. The placement by the bank with its affiliate company amounted to 86.86% of the bank’s own net funds as at 30 June 2018, which caused the bank to breach the regulatory limit of 10%. Furthermore, the purported use of the same funds by the parent company of the bank to reinvest in the bank was in contravention of Bank of Ghana’s requirements for bank capital. The bank has not been able to recover these funds for its operations.
- The bank persistently breached the cash reserve requirement (CRR) of 10% (CRR at 23 July 2018 was 1.97%) since the beginning of January 2018;
- The quality of the bank’s loan portfolio had seriously deteriorated resulting in a Non- Performing Loans Ratio (NPL) of 72.80%;
- The bank’s Capital Adequacy Ratio (CAR) was assessed to be negative 17.18% as against the regulatory minimum of 10%, thus, recording a capital deficit of GH¢159,162,557.64, rendering the bank insolvent.
Royal Bank was licensed as a universal bank in October 2012. It had over the last few years experienced solvency and acute liquidity challenges. An on-site examination conducted by Bank of Ghana in March 2018 revealed a number of irregularities. Bank of Ghana appointed an advisor for Royal Bank in May 2018 to advise management of the bank, with the primary mandate to stabilize and improve the affairs of the bank.
Based on Bank of Ghana’s assessment, Royal Bank was insolvent and faced with liquidity challenges. Specifically:
- The bank suffered severe capital impairment due to under-provisioning for loans, over estimation of investments with other financial institutions, and overstatement of capital on account of fixed assets which were rejected by the Bank of Ghana for capital purposes. This resulted in an adjusted capital of negative GH¢484 million, yielding a CAR of negative 80.53 percent. a capital deficiency of GH¢567.78 million and a net-worth of negative GH¢498.63 million as at 31st May 2018;
- The bank has persistently faced serious liquidity challenges since September 2017, resulting in the continuous breach of the cash reserve ratio required by section 36 of Act 930. It has survived on liquidity support totalling GH¢295 million;
- Its non-performing loans constituted 78.79 percent of total loans granted, owing to poor credit risk and liquidity risk management controls;
- A number of the bank’s transactions totalling GH¢161.92 million were entered with shareholders and related parties structured to circumvent single obligor limits under Act 930, conceal related party exposure limits under Act 930, and to overstate the capital position of the bank for the purpose of complying with the capital adequacy requirement.
Sovereign Bank Limited was licensed as a universal bank in January 2016 and began operations in April 2016.
- As part of Bank of Ghana’s investigations into the failure of Capital Bank Limited (currently in receivership), it emerged that Sovereign Bank’s initial capital contributed by its shareholders was funded from transfers from Capital Bank which had been presented to Bank of Ghana as investments on behalf of the bank. Subsequent to its licensing, a substantial amount of the bank’s capital was placed with another financial institution as an investment for the bank. The bank was, however, not able to retrieve this amount from the investment firm with which it was placed. It emerged that the investments were liquidated by the shareholders and parties related to them. Following enquiries by Bank of Ghana, the promoters of the bank admitted that they did not pay for the shares they acquired in the bank.
- The promoters of the bank have since surrendered their shares in the bank, while the directors representing those original shareholders have since resigned. In April 2018, Bank of Ghana appointed an Advisor to advise the management of the bank with a view to improving the affairs of the bank. The capital of the bank continued to deteriorate due to the Bank’s inability to recover the investments placed with financial institutions, as well as impairments to its loan book. Its capital adequacy ratio as at 1 August 2018 was negative 11.
- The Bank of Ghana concluded that Sovereign Bank was insolvent, and that there was no reasonable prospect of a return to viability. The bank was unable to meet daily obligations as they fell due. Liquidity support granted to the bank amounted to GH¢12 million as of May 2018. The bank could not publish its audited accounts for 31 December 2017, breaching section 90 (2) of Act 930.
- The bank’s situation resulted in persistent breaches of key regulatory requirements and prudential limits.
The Construction Bank was licensed in May 2017 and commenced operations in December 2017.
In the course of the official administration of uniBank, Bank of Ghana discovered certain transactions involving Construction Bank. Further investigations revealed that:
- The initial minimum paid up capital of the bank provided by its promoter/shareholder, was funded by loans obtained from NIB Bank Limited (GH¢34 million) and uniBank (Ghana) Limited (GH¢61.00 million), contrary to section 9 (d) of Act 930
- An amount of GH¢80 million out of the amounts reported as the bank’s paid up capital and purportedly placed with NIB and uniBank, remained inaccessible to the bank
- The bank’s inability to inject additional capital to restore its capital adequacy to the minimum capital of GH¢ 120 million required at the date of licensing threatened the safety of depositors’ funds and the stability of the banking system.
- Owing to the bank’s inability to access investments purportedly made in its name with other financial institutions, Bank of Ghana concluded that a total of GH¢80 million of the bank’s GH¢120 million initial paid up capital was unavailable to the bank for its operations, leaving an amount of GH¢ 40 million (one-third of the minimum capital of GH¢ 120 million).
- The Bank of Ghana requested the bank’s shareholder to recapitalize the bank to the minimum capital required at the time of its licensing. Even though the shareholder submitted plans to Bank of Ghana, the plans did not yield any success.
Bank Spread Analysis
| Bank Name | Within Accra | Outside Accra | Total Branches |
|---|---|---|---|
| uniBank | 30 | 25 | 55 |
| Beige Bank | 63 | 23 | 86 |
| Royal Bank | 18 | 9 | 27 |
| Sovereign Bank | 4 | 0 | 4 |
| Construction Bank | 1 | 0 | 1 |
| Totals | 116 | 57 | 173 |
Publication of Notice of Appointment of Receiver at each Branch of the Banks
As part of the intervention activities and in line with Section 125(2) of Act 930, the Receiver displayed notices at each branch of the five (5) banks in receivership. The notice disclosed the appointing authority of the Receiver, information indicating that the authority and functions of management of the respective banks ceased from 1 August 2018, which was also the effective date the Receiver assumed control of the banks.