Ghana: Unite Or Be Swallowed

Amidst the concerns raised over the Gh¢60m ($3.4m) recapitalisation requirement for indigenous banks, the Bank of Ghana is again urging mergers and acquisitions among the country’s banks.

This comes in response to fears that the local banks can hardly meet the recapitalisation requirement without losing their indigenous identities to foreign entities. The foreign-owned banks all met the requirement last year but industry players are worried local banks are rather likely to end up in the hands of foreign entities due to the challenges of raising the capital by the end of this year.

Governor Kwesi Amissah Arthur, however, says as much as the Central Bank is concerned about this risk, the recapitalisation is also crucial to reposition indigenous banks to take advantage of the country’s economic prospects. He said the way forward is therefore for the local banks to consider mergers and acquisitions amongst themselves. “As I said before we are very interested in voluntary mergers and acquisition because it helps to improve the capital base of the banks,” he said.

He said the local banks can only compete with the foreign banks which currently dominate big-ticket transactions in the oil sector. “We can only challenge and compete with them by increasing their capital base. So the Bank of Ghana will support any banks that will join capitals to challenge the foreign-owned entities,” he said.

Amalbank has been the first casualty of the recapitalisation requirement after losing its indigenous identity to Bank of Africa (BOA). Following this came the acquisition of a 100% stake in The Trust Bank (TTB) by Ecobank Transnational Incorporated (ETI).

The combined Ecobank Ghana and TTB is expected to produce the largest bank in Ghana in terms of assets with the largest ATM network and over 70 branches.

Over the past six years, five of Nigeria’s banks have set up subsidiaries in Ghana. These are United Bank for Africa, Intercontinental Bank, Zenith Bank, Guaranty Trust Bank, and most lately, Access Bank.

In addition, Union Bank is also a major shareholder in Ghana’s HFC Bank through its subsidiary, Union Homes, a mortgage finance institution. And Meeky Investment has a controlling 49% stake in Ghana’s Amalgamated Bank.

CAL Bank, an indigenous bank has consistently said it has not ruled out a merger or acquisition while it tries to raise more capital. CAL Bank Managing Director, Frank Adu Jnr, said, “This may require us admitting new shareholders who could potentially be strategic partners, or entertaining a merger, amalgamation or acquisition. Under any of these scenarios, CAL will become an expanded bank, thereby offering more opportunities for career advancement to all of you,” he said.

Reducing costs

The cost of lending by banks can be reduced if they can share some of their key infrastructure and thus reduce operational costs. The Managing Director, Zenith Bank Ghana Limited, Daniel Asiedu, said that cost of lending always rises in line with banks’ cost of operation, and that shared-services and collaboration through loan syndication will reduce the cost of operation and enable local banks to garner big ticket transactions in the oil and telecom sector dominated by foreign banks.

Asiedu said that even though banks think of supporting entrepreneurs, the cost of lending has been a major roadblock.

According to him, the banks need to share services in terms of Automated Teller Machine (ATM) usage. In many cases, he said, the machines are mounted too close together, with basic infrastructure repeated in all cases. By sharing and networking the infrastructure, the banks would save a huge amount, which could reduce the cost of credit and add to their profitability.

Asiedu said that the mistrust and cut-throat competition that exist in the industry is even affecting cooperation in terms of loan syndication. He explained that big ticket transactions are lost to foreign banks when local banks fail to come together to finance such transactions.

“We have stronger and powerful foreign banks who will take over the transactions even though they are not based in the country. Look at the Cocoa Board of Ghana for instance: financing is still being done by foreign banks. We need to work together to change this situation,” he said.