The Governor of Bank of Ghana, Dr. Ernest Addison, has assured the public that there are no more banks currently in distress that will call for the revocation of their licenses.
“Ladies and Gentlemen, you will recall that after the AQR [Asset Quality Review] exercise, a number of banks were not compliant with the capital adequacy ratio. I am happy to report that most of these banks have put in place credible action plans to restore the capital deficiency, and majority of these banks are already compliant as at today, and the overall banking system remains solid and well capitalized”, the Governor said at a press conference organized at the central bank on Monday, August 14.
Two banks, UT Bank Limited and Capital Bank Limited had their licenses revoked on August 14, following what the central bank describes as “deeply insolvent”.
According to Bank of Ghana (BoG), despite repeated agreements with UT Bank and Capital Bank to put them back on track following their capital and liquidity shortfalls, the two failed to implement action plans agreed to. In effect, the Bank noted that “the owners and managers of UT Bank and Capital Bank were unable to increase the capital of the banks to address the insolvency.
“Consequently, to protect customers, the BOG has decided to revoke the licenses of UT Bank and Capital Bank under a Purchase and Assumption transaction”, BoG said.
“UT Bank and Capital Bank were heavily deficient in capital and liquidity and their continuous operation could have jeopardized not only their depositors’ funds, but also posed a threat to the stability of the financial system”, the Governor added.
The Purchase and Assumption transaction model is very common in planning for the exit of banks in distress. With this model, healthy banks take over the running of unhealthy banks, significantly ensuring that the process is smooth so as to avoid any possible industry-wide problems.
“The Bank of Ghana has approved a Purchase and Assumption (P&A) transaction involving UT Bank and Capital Bank and the GCB Bank. This action was taken to protect depositors’ funds and strengthen Ghana’s financial sector”, the Governor emphasized during the press conference.