Check how BoG’s weak supervision collapsed Capital and UT Banks

It has emerged that the Bank of Ghana failed to enforce its regulations in granting licenses and supervising the operations of two local banks, UT and Capital Banks.

According to report, the Bank of Ghana was complicit in the wrongful issuance of banking license to Capital Bank.

It reported that Capital Bank during its application for license process, only provided evidence of GH¢23.2 million liquid investments and GH¢ 51.5 million illiquid investments as it was required to have at least GH¢60 million in investments.

“A review of the issuance of a banking license to Capital Bank reveals complacency or complicity on the part of the BoG. During the application stage, the Capital Bank shareholders produced evidence of only GH¢23.2 million liquid investments and GH¢ 51.5 million illiquid investments".

A provisional license was issued on condition of a “submission of evidence of lodgment of additional capital funds needed to make up the required GH¢ 60 million. The said funds should be lodged in an escrow account which would be verified by the Bank of Ghana”, amongst others.

“During the final approval, the shareholders instead produced placement certificates from financial institutions in their individual names but not an escrow account. This has now been confirmed to be genesis of the capital adequacy issues of the Capital Bank”.

The report indicated that the said funds that shareholders claimed were theirs were never transferred to the bank.  Although the attention of the Bank of Ghana was drawn to the situation, the BoG failed to sanction Capital Bank.

“The new funds were never transferred to the Capital Bank. In fact, the Capital Bank management began to refer to it as ‘re-engineered capital.’ This was brought to the attention of BoG, but again, there is no evidence of sanctions to either the institutions concerned or the individuals in senior management and on the Board of Directors”.

“BoG’s reports on its annual examination (2014 and 2015) reveal chronic instances of poor credit risk management, poor corporate governance practices, terminal decline of financial performance and insolvency. In several instances, there was an obvious disconnect between the review findings and the accompanying conclusions and a lack of consistent follow-up remedial actions. The reports detail many instances of regulatory breaches, but there do not seem to be any sanctions on either the institution’s concerns or the individuals in senior management and on the Board of Directors”, the report revealed.

“It is clear from all the information provided to the transaction team, that had the BSD acted upon the information it received or enforced the recommendations it made, most of the issues would not have occurred”.

It is also worth pointing out that according to Capital Bank’s 2015 examination report, only 4 of the 24 items identified by BoG as being problems during the previous inspection were rectified. Items not rectified include weakness in the credit and risk management systems at the bank and “weak board oversight of the bank’s risk management oversight function.” In view of the failure by the Board to rectify the shortcoming identified in the previous report issued in 2014 and in view of the BoG position.