UT, Capital Bank were defiant – BoG

The Central Bank has revealed that local banks whose licences were revoked were rude and thought they could disregard the authority of the Bank of Ghana (BoG).

According to Dr Ernest Addison, Governor, Capital Bank for instance, refused to cooperate with potential private sector acquirers and would not even allow due diligence to be carried out.

Speaking at the 71st Annual New Year School in Accra, Dr Addison noted: “We convened several meetings with shareholders and directors of the bank to try to ensure that they cooperated with the potential acquirers but their posture remained one of defiance because they had become accustomed to getting things done through influence peddling. Previously, BoG had approved several applications for liquidity support to Capital Bank on unjustifiable grounds and Capital Bank did not foresee that the BoG would behave differently even under the new management.”

He said the decision to revoke the licences of the banks was well thought through and executed even though several issues came up.

According to him, government agreed to provide relief to depositors by stepping in to guarantee the payment of all depositors’ funds.

“This paved the way for the BoG to finalise its eventual resolution approach of protecting depositors from losses by allowing depositors’ claims to be transferred through a Purchase and Assumption transaction to GCB Bank, to ensure that depositors of the two banks had access to their funds through GCB, supported by a bond issued by the government to fund the deposit liabilities,” he added.

On Monday, August 7, 2017 the BoG announced the revocation of the licences of the two banks and the appointment of two joint receivers with immediate effect as required by law.

Subsequent to the revocation of UT Bank and Capital Bank licences, he said BoG commissioned investigative work to examine factors that drove the banks into insolvency.

The investigations unearthed a number of malpractices which dated back to the banks’ inception.

There was established indebtedness of shareholders and directors to the banks where the shareholders and directors took huge personal loans from the bank which were not reported to the BoG and remained unpaid in contravention of Section 70 (4) of Act 930 (as amended), which states that management of a bank shall report to the board and BoG an exposure to an insider or related interest of that insider.

He also said the non-existence of required capital as licences were obtained by false pretence or misrepresentations while also the banks were abused by their related holding companies.

“For instance, one bank was paying royalties for the brand name even at a time that the bank’s financial performance was abysmal and could not pay dividends. This decision was made by four out of seven members of the board without the consent of the other significant minority shareholders, including an international financial institution. As a result, the international institution abrogated its relationship with the bank and this led to most foreign lenders cutting off their credit lines to the bank and recalling their credits thereby creating serious liquidity squeeze to the bank,” he stated.

Other reasons were the unbridled use of BoG’s liquidity support. He said both UT Bank and Capital Bank were granted a total amount of GH¢1.48 billion as liquidity support in three to four tranches under circumstances which were questionable.

“There was no follow up to ensure that liquidity supports were used for the purpose for which they were granted as required by law. In the circumstances, the liquidity support was misused, with some of it used mainly for placements, investments, financing related party transactions, and loans to highly politically exposed people.”

Additionally, Dr Addison said non-executive directors of the banks compromised their independence and fiduciary dutiesto serve as checks on executive directors, while in the case of Capital Bank; its directors/management misrepresented its financial status when a property belonging to the bank was assigned to a shareholder in 2012 without properly accounting for it in the bank’s books.

Furthermore, he said nonexecutive directors interfered in the day-to-day administration; there was general lack of adherence to credit management principles and proceduresas the banks were heavily exposed to insiders and related parties; there was diversion of funds to holding companies and their related parties where placements could not be traced to the bank’s records though some customers showed proof of their investments with the bank. There were irregular board meetings and lastly very high executive compensation schemesoperated by the affected banks which were not commensurate with their operations adding that the risk and earnings profile of the banks could not support the compensation schemes.

Source: Ghanaweb