How BoG’s Weak Supervision Resulted in Capital, UT Banks’ Collapse

BoG

Accra, Ghana, August 8, 2018//-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 Bank.

The report, available to citinewsroom.com indicated that 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 and 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.

The report further revealed that the BoG failed to appoint an advisor for UT Bank and Capital Bank to supervise the use of their liquidity supports despite stating in a letter accompanying the support that the advisor will be appointed to them.

Amoabeng too pocketed money meant for loan payment

Meanwhile, aspects of the same report into the operations of now-defunct UT  and Capital Banks has revealed that some payments were made to former Chief Executive Officer and Director of U.T Bank, Mr. P.K Amoabeng from a loan defaulting entity, Kofi Jobs Limited.

The loans which amounted to GHC 5m were never disclosed to the Board of the U.T Bank.

The report also revealed that there was a significant amount of inter-group lending involving other subsidiaries of the holding company, UT Holdings,  while connected party loans were made to some companies as listed below:

  • Ibrahim Mahama’s Related Companies, amounting to GHC 261.4 m and US $ 6.4 m
  • Quincy Sintim’s Related Companies, amounting to GHC 84.1 m
  • Beige Group’s Related Companies, amounting to GHC 10.9m

“The bank sought a waiver of the Ibrahim  Mahama related companies’ single obligor violations by the Bank, yet undertook a pass through US $6.4 million transactions by giving Beige Capital Savings and Loans a US $5 million placement as guarantee for Beige to extend a US$5 million loan to Hodman Brothers,” the report said.

“Placing foreign currency with a savings and loans company is a breach of the Banking Law. Likewise, the extension of a United States Dollar loan facility by a savings and loans company was in breach of the banking regulations,” the report added.

Capital Bank board squandered BoG cash 

In the case of Capital Bank, it was alleged that the bank’s then-Board Chair, Dr. Mensa Otabil was party to the misuse of liquidity support given the bank by the Bank of Ghana (BoG), according to an investigative report sighted by Citi News.

The report cites an emergency board and Executive Committee meeting on October 13, 2015, over the use of GHc 610 million liquidity support to the bank which was struggling at the time.

The GCB in 2017, took over the two banks under a purchase agreement approved by the Bank of Ghana.

GCB Bank has since absorbed about four hundred workers.

Citinewsroom

 

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