New Capital Requirement Stretches Banks

Dr Ernest Addison, Governor, BoG

The recent upward revision of the minimum paid-up capital to GH¢400 million by the Bank of Ghana (BoG) has started causing tension in the country’s banking industry.

According to a notice from the Central Bank to banks and the general public signed by Caroline Otoo, Secretary to BoG, all existing banks have up to 31st December, 2018 to meet the new minimum paid-up capital requirement.

The directive, which is in accordance with Section 28(1) of the Banks and Specialized Deposit-Taking Institutions Act, 2016 (Act 930), is the third over the last decade.

In 2008, the Bank of Ghana increased the minimum capital requirement for commercial banks from GH¢7 million to GH¢60 million, representing over 700 percent increase.

Subsequently in 2012, commercial banks were expected to recapitalize to GH¢120 million, representing a 100 percent rise from the previous GH¢60 million.

The current GH¢400 million represents 233 percent rise from the current GH¢120 million.

Sources say the Bank of Ghana (BoG) was forced to increase the capital due to low working capital and less money available for lending.

Even though most of the banks have indicated that their readiness to meet the new minimum requirement, a careful study of the banking landscape indicates only 10 of the banks could meet the new capital requirement of GH¢400 million owing to current economic situation.

They risk losing their licences by January 1, 2019 if they fail to meet the requirement before 31st December next year.

Some analysts have indicated some of the banks would want to go to their existing shareholders to raise the capital or fall on the Ghana Stock Exchange’s initial public offering which could likely happen after six months.

Owing to the situation, some local banks have started discussions with foreign banks for possible acquisitions.

The announcement has been greeted with mixed reactions from analysts.

Dr. Lord Mensah of the University of Ghana Business School said the move poses a threat to the local economy, as local banks are likely to be taken up by larger banks which will greatly distort government’s funding needs in the long run.

Alhassan Andani, President of the Association of Bankers, speaking to Joy News stated: “There are new banks that have come in and shareholders have come up with what they think they can afford and that might be an immediate stress.

“There would be some bit of difficulty on newer banks and lower tier banks but shareholders, if they still recognize and see benefit in the niche market that they’ve set up these banks to play in, [they] will step in,” he said.

All banks, which currently have been granted ‘Approval in Principle’ shall comply with the new minimum capital levels by end December 2018, the BoG said.


By Samuel Boadi