The Banking Sector in Ghana: Issues in relation to Current Reforms : Issues in relation to Current Reforms [1 ed.] 9783954895465, 9783954890460

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Edmund Benjamin-Addy

The Banking Sector in Ghana

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Issues in relation to Current Reforms

Anchor Academic Publishing disseminate knowledge

The Banking Sector in Ghana: Issues in relation to Current Reforms : Issues in relation to Current Reforms, Diplomica Verlag, 2013. ProQuest Ebook Central,

Benjamin-Addy, Edmund: The Banking Sector in Ghana: Issues in relation to Current Reforms. Hamburg, Diplomica Verlag GmbH 2013 ISBN: 978-3-95489-046-0 Print: Anchor Academic Publishing, an Imprint of Diplomica® Verlag GmbH, Hamburg, 2013 Bibliographical Information of the German National Library: The German National Library lists this publication in the German National Bibliography. Detailed bibliographic data can be found at: http://dnb.d-nb.de The digital publication (eBook) of this work with the ISBN 978-3-95489-546-5 can be purchased on the general market or directly from the publisher.

All rights reserved. This publication may not be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publishers.

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Dieses Werk ist urheberrechtlich geschützt. Die dadurch begründeten Rechte, insbesondere die der Übersetzung, des Nachdrucks, des Vortrags, der Entnahme von Abbildungen und Tabellen, der Funksendung, der Mikroverfilmung oder der Vervielfältigung auf anderen Wegen und der Speicherung in Datenverarbeitungsanlagen, bleiben, auch bei nur auszugsweiser Verwertung, vorbehalten. Eine Vervielfältigung dieses Werkes oder von Teilen dieses Werkes ist auch im Einzelfall nur in den Grenzen der gesetzlichen Bestimmungen des Urheberrechtsgesetzes der Bundesrepublik Deutschland in der jeweils geltenden Fassung zulässig. Sie ist grundsätzlich vergütungspflichtig. Zuwiderhandlungen unterliegen den Strafbestimmungen des Urheberrechtes. Die Wiedergabe von Gebrauchsnamen, Handelsnamen, Warenbezeichnungen usw. in diesem Werk berechtigt auch ohne besondere Kennzeichnung nicht zu der Annahme, dass solche Namen im Sinne der Warenzeichen- und Markenschutz-Gesetzgebung als frei zu betrachten wären und daher von jedermann benutzt werden dürften. Die Informationen in diesem Werk wurden mit Sorgfalt erarbeitet. Dennoch können Fehler nicht vollständig ausgeschlossen werden, und der Diplomica Verlag, die Autoren oder Übersetzer übernehmen keine juristische Verantwortung oder irgendeine Haftung für evtl. verbliebene fehlerhafte Angaben und deren Folgen. © Anchor Academic Publishing ein Imprint der Diplomica® Verlag GmbH http://www.diplomica-verlag.de, Hamburg 2013 Printed in Germany

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DEDICATION This research work is dedicated to my lovely wife, Jackie, whose support and encouragement

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has brought me this far and also to our child Eddie Jnr.



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ACKNOWLEDGEMENT I am immensely grateful to the Omnipotent Father for sustaining me in my quest for higher education. The preparation and submission of this project work would not have been possible without the support of certain personalities who deserve my gratitude. I wish to offer my profound appreciation to my supervisor, Miss Stella Nyarko who regardless of her busy schedule has assisted me to this end.

I owe a debt of gratitude to Dr. Robert Akuamoah, Mrs. Ophelia Ayeh and Madam Regina Appiah-Kubi for urging me on especially when the pressure of combining full time employment with academic work got quite unbearable.

Also to Mr. Richard Mends for his continued support through my project work. To my extended family and friends whose words of encouragement and support has enabled me to chalk

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this feat in life. God bless you all.

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    ABSTRACT In recent times a lot of banks have found Ghana a good destination for extending their operations and this has heightened competition in the banking industry. By way of ensuring that banks maintain adequate working capital, the industry regulator i.e. Bank of Ghana came out with a directive instructing all commercial banks to ensure that by the close of December 2012 their operating capitals do not fall below GH¢60million. As at the close of December 2011, almost all foreign banks had complied. However, some local banks are sensing serious limitation in meeting the order. The study therefore had the objective of finding out the challenges facing these banks thereby recommending avenues for raising funds to meet the proposed capital requirement. Six banks operating in the Accra business district namely National Investment Bank (NIB), Ecobank Ghana Ltd. (ECB), Prudential Bank, Ghana Commercial Bank, Merchant Bank Ghana and Zenith Bank were used for study. Primary data was obtained by soliciting views from bank officials on questions like what challenges confront Ghanaian Banks in their cash mobilization efforts? How could the banks generate more funds from the Ghana Stock Exchange? What efforts were being made to secure funding from strategic investors? How could they reduce operating cost to enhance working capital? The secondary data emanated from financial statements and brochures of the banks. There was a direct approach to officers of these banks whose job description included liquidity adequacy or assets liability management. The questionnaire technique was adopted as the ideal research instrument. The data was analyzed using SPSS application, TOPAZ and resulting charts and graphs was featured.

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Findings made are that the Ghana stock exchange does not wield the capacity to help all the struggling banks because in the space of four years at least four banks have already capitalized on the Stock Exchange to beef up their working capital, moreover, Ghanaians now prefer money market products especially treasury bills to capital market products like shares. Central banks regulations also do not favour accessing certain category of international cheap funds. Recommendations made call on the struggling banks to consider mergers and acquisition as a viable option to staying in business. It has also been suggested that The Central Bank could assist commercial banks in saving some funds to beef up their liquidity positions by financing compulsory service delivery systems such as ATMs, through long term loans. Some conclusions drawn are that some commercial banks genuinely need help to recapitalize and that options being considered include attracting strategic international partners, mergers and acquisitions, as well as looking inwards to cut cost so as to step up liquidity levels.

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    LIST OF TABLES AND FIGURES Page TABLES: 3.1 Distribution of Respondents 4.1: Frequency Table Showing Age and Gender of Respondents 4.2: Frequency Table Showing the Highest Academic Qualification of Respondent 4.3: Frequency Table Showing the Service Duration of Respondents 4.4: Operating Capital of Banks 4.5: Frequency Distribution Table on Extra Cash Mobilization Efforts of Banks 4.6: Frequency Table Showing the Kind of Investor-Arrangements Banks Are Entering 4.7: Frequency Table showing the importance of GSE to the Banking Industry 4.8: Frequency Distribution Table showing respondent’s views on the ability of using the GSE to Raise Funds 4.9: Frequency Table Showing Functional Areas That Can Be Successfully Outsourced

48 54 55 57 59 62 72 75 79 83

FIGURES: 4.1: 4.2:

A graph showing the trend in the developing of operating capital of the various banks Bar chart showing problems with cash mobilization

Pie chart showing difficulties encountered by banks in attracting free cash Pie chart showing banks that are planning to attract strategic investors Bar-graph show views on how banks plan to invest extra funds comes with Recapitalization 4.6: Pie Chart showing products banks intend to access on the GSE 4.7: Bar graph showing why banks are not enthused at going to the GSE for help 4.8: Bar Graph showing views on areas where cost can be reduced to improve liquidity 4.9: Pie chart showing how cost between banks can be reduced 4.10: Bar graph showing areas where BoG could assist banks to reduce cost in order to smoothly embark upon recapitalization

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4.3: 4.4: 4.5:

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59 66 69 71 74 77 78 82 85 87

  

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ABBREVIATIONS IFC

International Financial Organisation

GSE

Ghana Stock Exchange

SPSS

Statistical Package Social Science

MUCG

Methodist University College Ghana

MPC

Monetary Policy Committee

TTB

The Trust Bank

NPA

Non-Performing Assets

CEO

Chief Operating Officer

GCB

Ghana Commercial Bank

NYSE

New York Stock Exchange

IPO

Initial Public Offerings

ECB

European Central Bank

HND

Higher National Diploma

SE

Stock Exchanges

MBG

Merchant Bank Ghana Limited

PBL

Prudential Bank Limited

NIB

National Investment Bank

IMF

International Monetary Fund

BoG

Bank of Ghana

SME

Small and Medium Scale Enterprises

CRO

Credit Risk Officer

SG-SSB

Societe Generale-Social Security Bank

MDG

Millennium Development Goals

PEED

Private Enterprise Expert Development

UBA

United Bank of Africa vi

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    ATM

Automated Teller Machines

HR

Human Resources

HRM

Human Resources Management

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    TABLE OF CONTENT Page

Acknowledgement Abstract List of Tables and Figures Abbreviation Table of Content

iii iv vi vii ix

CHAPTER ONE INTRODUCTION 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8

Introduction Background of the Study Statement of the Problem Objective of the Study Research Questions Research Methodology Significance of the Study Scope and Limitation of the Study Chapter Disposition

1 1 4 5 5 6 8 8 9

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CHAPTER TWO LITERATURE REVIEW 2.0 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13 2.14

Introduction Meaning of Capitalization The Types of Capitalization Addressing Recapitalization Challenges Confronting Ghanaian Banks The Need for Capitalizing Banks A Sketch of the Reasons for and against Recapitalization Essentials for a Successful Recapitalization A Strategic approach to Cost Reduction in Banking Recapitalizing through the Stock Market Effects of Sound Bank Capital on Bank Behaviour Foundations for the Link between Relationships, Illiquidity and Bank Capital Disciplines from the Threat of Closure due to Capital Requirement Challenges of Recapitalization Prospects of Recapitalization Summary and Conclusion

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11 11 11 15 17 19 20 27 33 35 37 40 41 43 44

  

CHAPTER THREE RESEARCH METHODOLOGY 3.0 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8

Introduction Research Design Study Population Sampling Techniques Research Instrument Data Collection Pretesting Data Processing and Analysis Ethical Consideration

46 46 47 49 50 51 51 51 53

CHAPTER FOUR PRESENTATION AND ANALYSIS OF DATA 4.0 4.1 4.2 4.3 4.4 4.5 4.6

Introductions 54 Analysis of Demographic Features of Respondents 54 Issues Relating To Challenges of Mobility of Extra Cash for Recapitalization 58 Analysis of Issues Relating to the Attraction of Strategic Investors 71 Analysis of Issues Relating to Generating more Funds from Ghana Stock Exchange 75 Analysis of Issues Relating to Reducing Cost to enhance Recapitalization Process 81 Findings 88

CHAPTER FIVE SUMMARY, CONCLUSION AND RECOMMENDATION

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5.0 5.1 5.2 5.3

Introduction Summary Conclusion Recommendation

91 91 93 94

References Appendix I: Questionnaires Appendix II: Calculation of Operating Capital

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97 106 116

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    Chapter One

1.0

Introduction

The study examines the challenges confronting commercial banks in Ghana as they strive to honour the recapitalization directive issued by the industry’s regulator, that is, Central bank of Ghana. It begins by outlining the background to the study, followed by the statement of the problem, rationale and objective of the study prior to presenting the research questions. The research methodologies, significance of the study, as well as the chapter organization have all been featured in this opening chapter.

1.1

Background of the Study

Banking reforms have been an ongoing phenomenon around the world right from the 1980s; it has however more intensified in recent years due the impact of globalisation which is precipitated by continuous integration of the world market and economies. Financial restructuring mainly involve the recapitalization of the banks with equity injection where liquidity was low, and the cleaning up of the balance sheets of non-performing assets.

Capitalization refers to the process of determining the quantum of funds that a firm needs to run its business. Various financial management experts have indicated varying degrees of

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definition for capitalization. According to Guthman and Dougall (2002) “capitalization is the sum of stocks and bonds outstanding”. Bonneville and Dewey (2002) also note that “capitalization is the balance sheet value of stocks and bonds outstands”. Dewing (2004) is of the view that “capitalization is the sum total of the par value of all shares”.

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Capitalization is an important component of reforms in the banking industry, owing to the fact that a bank with a strong capital base has the ability to absolve losses arising from non performing liabilities. Attaining capitalization requirements may be achieved through consolidation of existing banks or raising additional funds through the capital market

Banking sector reforms and recapitalization have resulted from deliberate policy response to correct perceived or impending banking sector crisis and subsequent failures. This crisis can be triggered by weakness in banking system characterized by persistent illiquidity, insolvency, undercapitalization, high level of non-performing loans and weak corporate governance, among others.

The global financial and economic crisis presents significant challenges for many African countries including Ghana. It has also exposed weaknesses in the functioning of the global economy and led to calls for the reform of the international financial architecture. Although the crisis was triggered by events in the United States housing market, it has spread to all regions of the world with dire consequences for global trade, investment and growth. The crisis presents a serious setback for Africa because it is happening at a time when the region is making progress in economic performance and management.

Recapitalization in Ghana comes with every amendment to the existing banking laws.

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Indigenous and foreign commercial banks in Ghana have therefore been instructed to augment their capital level to a minimum of GH¢60 million by December of 2012. The indigenous banks according to the Bank of Ghana (BOG) have been given a longer period to meet the deadline, this is having been given GH¢25 million by 2010 and GH¢60 million by December 2012.

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According to Acquah (2006), it was necessary for the banks to recapitalize in order to support the economic growth of the country. The financial sector continues to grow and thus there is the need to have a strong capital base in order to compete with colleagues on the African continent and also to withstand unforeseen external shocks like the recent financial crisis which can throw the economy off gear. This measure has the strategic objective of improving liquidity levels within the banking industry. It is believed that vital sectors of the economy continue to register serious financing challenges.

Globally commercial banks have not taken re-capitalization orders from their Central Banks kindly at all. The president of German Deutsche bank was quoted as threatening to resist any pressure to recapitalize because “it would be impossible for many banks to raise capital from the markets in current climate” and that they would “do everything to avoid a forced recapitalization”.

Asedionlen (2004) also questioned the long term impact of recapitalization and came up with his hypothesis that “recapitalization may raise liquidity in short term but will not guarantee a conducive macro-economic environment required to ensure high asset quality and good profitability”. Locally a good number of Ghanaian banks are sensing their limitation in meeting the new capital level of GH¢60 million by the close of 2012. Some merger propositions tabled a little over a year ago by some of the ‘weak’ banks are yet to be taken into consideration

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by their shareholders.

Perhaps it might be worth noting that the origin, determinant, trends, importance and implication of bank recapitalization has been scantly discussed in literature and therefore this study to assess the prospects and challenges of re-capitalizing commercial banks in Ghana

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could in a small way, contribute towards enhancing the general body of knowledge on the subject.

1.2

Statement of the Problem

According to Soyinbo and Adekanye (2002) and Adam (2003) nearly 100 out of the 128 banks in Nigeria failed and collapsed as result of inadequate capital base, mismanagement of funds, overtrading, and lack of sound regulation, control and unfair competition from the foreign banks. Being conscious of the afore-mentioned challenges which disrupted the Nigerian financial services environment and moreover given the fact that some of these Nigerian banks are also players in the Ghanaian industry the Central Bank of Ghana quickly devised a strategy not only to shore up the liquidity levels of the banks but also strengthen its banking supervisory department through extensive training and development activities for it personnel.

Unfortunately, an analysis of financial statements published by the local Ghanaian dailies at the close of March 2011 showed unequivocally that as at December 2010 only 6 out of the 26 players in the industry had crossed the envisaged 2012 new capital requirement of GH¢25 million. As at November, 2011, the governor of the Central Bank of Ghana, Kwesi AmissahArthur lamented over the fact that out of the twelve(12) wholly owned Ghanaian commercial banks only five (5) have been able to meet the new capital adequacy requirements of GH¢60million.

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He warned that banks which are unable to meet the new capital quantum by the close of December, 2012 “will have their universal licenses revoked and converted into non-banking institutions”. He advised management of ‘struggling’ banks to consider going to the stock exchange or move towards acquisitions and mergers.

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How are Ghanaian banks strategizing to improve upon their cash mobilization efforts? Is the Ghana Stock Exchange (GSE) sophisticated enough to help raise the needed new capital for the banks? Do the existing banks have the required capacity and capabilities to attract international strategic investors? Can Ghanaian banks cut cost to enhance loanable fund thereby improving upon their liquidity levels? These and other problems form the thrust of this study.

1.3

Objective of the Study

The study has the objective of: 1. Examining the adequacy of the cash mobilization strategies of the banks. 2. Assessing the prospects of generating more funds from the Ghana Stock Exchange. 3. Investigating the possibility of International partners such as International Financial Corporation (IFC) increasing its investment in local banks like Merchant Bank Ghana Limited (MBG), etc. 4. Exploring avenues where operating cost can be reduced to enhance available funds for lending purposes. 5. Examining any restriction placed on the banks in mobilizing cash.

1.4

Research Questions What challenges confront the Ghanaian banks in their cash mobilization efforts

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towards meeting the new minimum capital requirement? How can the banks generate more funds from the Ghana Stock Exchange and other Stock Exchanges outside the country? What are the modalities for sourcing funds from international strategic investors and International Finance Corporation?

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How can the bank reduce operating cost to save the money for more lending purposes? What are some of the restrictions that the Central Bank places on banks to rope in more funds?

1.5

Research Methodology

This segment of the introductory chapter has been dichotomized into: Sources of data Data Collection and analysis

1.5.1 Sources of Data Both primary data and secondary data will be employed in the study. Primary data will emanate from the firsthand information on the current state of the banks and the measures being putting in place to meet the deadline. This will be obtained from interacting with management members and officials of the six banks within the Accra business district. These banks include Prudential Bank Limited (PBL), National Investment Bank (NIB), Ecobank Ghana Limited, Ghana Commercial Bank (GCB), Merchant Bank Ghana (MBG) and Zenith Bank.

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Secondary data will be derived from analyzing reports especially financial statements of commercial banks, articles from journal and contemporary publications on challenges and prospects of recapitalization of commercial banks.

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    1.5.2 Data Collection and Analysis The questionnaire technique will be adopted as research instrument and research questions will endeavour to evaluate strategies by the banks to shore up capital level. Specifically the interaction with management members and bank officials will cover issues such as what efforts the banks are making to meet the new minimum capital levels? With recent ‘swallowing ups’ of some of the banks, it has come to light that certain banks are suffering from liquidity issues (Ghana Banking Survey, 2011), so the question is, what can be done internally by way of reducing cost to improve liquidity by way of reducing cost? What is the liquidity position of these banks? What restrictions are placed on banks by the Central Bank in the mobilization of more funds? What efforts are being made to secure strategic international investors? What role could the Ghana Stock Exchange play in addressing the challenges faced by banks to meet the new liquidity levels? The researcher believes that answers to these questions would help achieve the objectives of the study.

Purposive or non-probability sampling technique will help to directly approach management members of the various banks for their views on the subject of capitalizing banks. A time frame not exceeding two weeks will be agreed upon within which each respondent will be expected to complete answering the questionnaire. At the agreed time, the researcher will personally visit all the respondents to retrieve the answered questionnaires. Statistical Package for Social Science (SPSS) was used to analyze the data and the resulting pie charts,

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bar graphs, graphs, frequency tables, and others, were featured in the fourth chapter. Moreover, the accounting package TOPAZ aided in the computation and graphing of the relevant accounting ratios which helped in assessing the current financial situation of the various banks.

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    1.6

Significance of the Study

The study is important in that: The findings will contribute to the general body of knowledge concerning recapitalization of banks It will prompt the management of universal bank on how to generate more funds to operate Other financial institution which might be privy to the findings would compare notes and act appropriately. The researcher’s knowledge on subject of the study will be deepened. Other students of Methodist University College Ghana (MUCG) graduate school who might be researching along similar lines will use the final report as a useful reference material.

1.7

Scope and Limitations of the Study

1.7.1 Scope The Accra Business District will constitute the study area within which bank officials and management members of the six leading banks will be interviewed. The distribution of the respondents will be as follow:

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Banks

Officers

Management

Total

National Investment Bank

20

5

25

Prudential Bank

15

3

18

Ecobank Ghana Ltd

22

7

29

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     Ghana Commercial Bank

29

10

39

Merchant Bank

19

4

23

Zenith bank

13

3

16

118

32

150

Total

1.7.2 Limitations of the study Currently Ghana has 26 fully fledged universal banks with a little over

700 branches

nationwide. Using only the headquarters of six (6) banks places a limitation on the adequacy of information for the study. Moreover socio-economic conditions in places outside the capital city of Accra are much different from what pertains in Accra alone and this creates a credibility gap when generalizing the findings of the study. Although a much wider scale of the study could have enhanced the outlook of the study, the researcher does not have the logistics especially funds and time for such an extensive venture. Notwithstanding the aforementioned constraints the researcher is poised to turn out a final report that will be representative of the banks sampled and selected.

1.8

Chapter Disposition

The study will be captured under five chapters. Chapter One will introduce the study by

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outlining the background information, statement of the problem, objectives of the study, justification of the study, research methodology, scope and limitation of the study.

Chapter Two will review contemporary literature on capitalizing banks and related matters. Essentially it will discuss various types of capitalization of commercial banks, the merit and 9

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demerits, causes of under and over-capitalization, the history and practices of capitalization of commercials banks within Ghana’s financial services environment, ways of improving capitalization of commercial banks in Ghana and many more.

Chapter Three will outline the details of the research methodology. It will feature the research design, the sources of data, sampling techniques, research instruments, data collection strategies and data analysis techniques.

Chapter Four will present the analyzed data and discusses the findings.

Chapter Five is the summarization of the study, appropriate recommendations and useful con-

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clusions drawn.

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    Chapter Two Literature Review 2.0

Introduction

This chapter reviews contemporary articles and publications on challenges of recapitalizing commercial banks. It begins with definitions of terms relating to capitalizing of banks prior to discussing literature on the needs to recapitalize banks. It further examines essentials for successful recapitalization, a strategic approach to cost reduction within the financial services environment as well as recapitalizing through the stock exchange. The review also covers the effect of sound bank capital and bank behaviour as well as the challenges of recapitalization.

2.1

Meaning of Capitalization

Reputable banking and finance writers such as Flannery (2005), Hofmann (2009) and Kashyap et al (2008) all refer to capitalization as the process of determining the quantum of funds that a firm needs to run its business. Ammann (2001) also notes that capitalization is only the par value of share capital and debenture and it does not include reserve and surplus. According to Cooper et al (2003) “capitalization is the sum of the par value of stocks and bonds outstanding”. To Danielson et al (2004) “capitalization is the balance sheet value of stocks and bonds outstands”.

2.2

The Kinds of Capitalization

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In the view of Cooper et al (2003) capitalization may be classified into the three important types based on its nature, namely; over capitalization, under capitalization and water capitalization.

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    2.2.1

Over Capitalization

Over capitalization, Hassan and Bashir (2009) indicate, refer to the company which possesses an excess of capital in relation to its activity level and requirements. Simply, over capitalization is having more capital than is actually required and the funds are not properly utilizing the funds. According to Ito and Sasaki (1998) a business concern is said to be overcapitalized if its earnings are not sufficient to justify a fair return on the amount of share capital and debentures that have been issued.

A business is said to be over capitalized when the total of owned and borrowed capital exceeds its fixed and current assets, that is, when it shows accumulated losses on the assets side of the balance sheet. An over capitalized company can be likened to a very fat person who cannot carry his weight properly. Such a person is prone to many diseases and is certainly not likely to be sufficiently active. Tanner (1995) argues that unless the condition of overcapitalization is corrected, the company may find itself in great difficulties.

Causes of Over Capitalization According to Nakaso (1999) over capitalization occurs due to the following causes: over issue of capital by the company, borrowing large amount of capital at a higher rate of interest, providing inadequate depreciation to the fixed assets, excessive payment for acquisition of goodwill, high

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rate of taxation and under estimation of capitalization rate.

Effects of Over Capitalization Diamond (2001) also states that over capitalization leads to the following effects; reduce the rate of earning capacity of the shares, difficulties in obtaining necessary capital to the

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business concern, leads to fall in the market price of the shares, creates problems on reorganization and leads to under or mis-utilisation of available resources.

Remedies for Over Capitalization According to Bikker and Hu (2002) over capitalization can be reduced with the help of effective management and systematic design of the capital structure. Efficient management can reduce over capitalization, redemption of preference share capital which consists of high rate of dividend, reorganization of equity share capital and reduction of debt capital.

2.2.2 Under Capitalization Under capitalization is the opposite concept of over capitalization and according to Banks (2004) it will occur when the company’s “actual capitalization is lower than the capitalization as warranted by it earning capacity”. Under capitalization is not the so called inadequate capital. Under capitalization has been described by Hogath and Thomas (1999) as, “a corporation may be undercapitalized when the rate of profit is exceptionally high in the same industry”. Diamond (2001) defined under capitalization as “an excess of true assets value over the aggregate of stocks and bonds outstanding”. When owned capital of the business is much less than the total borrowed capital than it is a sign of under capitalization. This means that the owned capital of the company is disproportionate to the scale of its operation and the business is dependent upon bor-

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rowed money and trade creditors.

Under-capitalization according to Shin (2006) may be the result of over-trading. It must be distinguished from high gearing. In case of capital gearing, Rochet (2008) explains that there is a comparison between equity capital and fixed interest bearing capital (which includes reference share capital also and excludes trade creditors) whereas in the case of under

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capitalization, comparison is made between total owned capital (both equity and preference share capital) and total borrowed capital (which includes trade creditors also). Under capitalization is indicated by Low proprietary Ratio, Current Ratio and High Return on Equity Capital.

According to Ben-Nacour and Goaied (2008) the effects of under capitalization may be payment of excessive interest on borrowed capital, use of old and out of date equipment because of inability to purchase new plant and high cost of production because of the use of old machinery. It is the conviction of Acquah (2006) that when Ghanaian banks are recapitalized, players in the industry will modernize their services delivery systems, open more branches and extend more loans to the Small and Medium Scale Enterprises (SME) sector thereby playing their proper role in the socio-economic development in the country.

Causes of Under Capitalization According to Berger (1995) under capitalization arises due to the following causes; under estimation of capital requirements, under estimation of initial and future earnings, maintaining high standards of efficiency, conservative dividend policy, desire for control and trading on equity.

Effects of Under Capitalization

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Under Capitalization in the view of Tanner (1995) leads to certain effects on the company and its shareholders. It leads to manipulation of the market value of shares, increases the marketability of the shares, more government control and higher taxation, feelings exploitation by consumers of the company and high competition.

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of

    Remedies for Under Capitalization In the opinion of Ammann (2001) Under capitalization may be corrected by taking these remedial measures: compensating with the help of fresh issue of shares, increasing the par value of share may correcting by the issue of bonus shares to the existing shareholders and reducing the dividend per share by way of splitting up of shares.

2.2.3 Watered Capitalization If the stock or capital of the company is not backed by assets of equivalent value, Hogarth and Thomas (1999) describe it as watered stock. In other words, watered capital means that the realizable value of assets of the company is less than its book value. According to Hogarth and Thomas (1999), “a stock is said to be watered when its true value is less than its book value”.

2.3

Addressing Recapitalization Challenges Confronting Ghanaian Banks

Officials of the Central Bank of Ghana have been deliberating on the constraints wholly Ghanaian owned banks encounter in meeting Bank of Ghana’s (BOG) minimum capital requirement of GH¢60 million. According to governor Amissah-Arthur (2012) as at the close of December 2011 only 16 out of the 27 players in the banking industry of Ghana had been able to meet the recapitalization directive.

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Out of the 16 ‘successful’ banks 13 (81.25%) are foreign banks meaning that majority of the purely indigenous banks are yet to find their feet as far as the new capital requirement is concerned. Meanwhile the Central Bank’s Monetary Policy Committee (MPC) at its last quarterly meeting for the 2011 warned that “the central bank would not give reprieve to any bank that failed to shore up its capital to GH¢60 million” within the stipulated time. The

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MPC added that “recalcitrant banks would see their Licenses being revoked while they would be converted to non-bank financial institutions”

The Central Bank (2012) advises struggling local banks to “invite more shareholders by listing on the Ghana stock Exchange (GSE)”. Initially the Bank of Ghana expect local banks to list just enough shares to raise fund necessary to close the capital gap, subject to meeting the GSE’s minimum floatation threshold of 25 percent of the banks equity. Local banks should consider mergers and acquisitions in the banking industry (2012), “there is the need for such moves in order for the banks to undertake big ticket deals.” Governor AmissahArthur (2012) expressed serious reservation over the fact that “Ghanaian banks had not done well in the area of syndication which is the best way to go when there are huge projects to be underwritten”.

On the issue of mergers and acquisition, Ecobank Ghana is said to have concluded negotiation to acquire the The Trust Bank (TTB) while BPI bank has also lost its identity to UT bank. CAL bank, First Atlantic Merchant Bank, have all not ruled out the possibility of mergers. The recapitalization directive from the Central Bank itself has been received with mixed feelings within the financial circles in Ghana. Opponents to the directive argue that banks should be allowed to operate according to their strength and that it is unfair forcing every bank to oper-

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ate above GH¢60 million.

Entuah (2012) argues that in a competitive environment, some players will obviously have more capital than others because they have a bigger sphere of operation and therefore will be looked upon as industry leaders. The source further lamented over the fact that most banks are being forced to seek international strategic partners who invariably will own more shares

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in these banks and therefore could change their operational orientation to the detriment of the socio-economic development of the country. It further discloses that some bank have no immediate plan to use such huge funds and therefore might not optimize the time value of their loose funds. The Central Bank however maintains that the new order will assist purely local banks to rub shoulders with the foreign banks in syndicated businesses which bring in more income.

2.4

The Need for Capitalizing Banks

According to Field (2008) “when a nation’s bank experience major losses, depositors, the markets, and regulators respond” The market responds by making it difficult for the bank to raise funds. Depositors may rush to withdraw funds from the banks. The regulators, according to Levine (1998) respond by closing banks, guaranteeing their liabilities, or recapitalizing them. The most obvious decision that regulators have to make is whether to let banks fail. Do their inabilities to raise sufficient private capital indicate that they are not viable or produce future services that are worth less than their cost, and thus should be closed? Only if the government, depositors, and borrowers were first allowed to jointly renegotiate first, would the inability to restructure indicate that the banks are not viable.

According to Hogarth and Thomas (1999) in many countries, there is a very deep government safety net and substantial regulations that influences discussions on bank capital structure. So

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one approach in the view of Sufian and Chong (2008) would be to ignore the markets and analyze bank recapitalization as a bargaining situation between banks and regulators. Even with total deposit insurance, Hassan and Bashir (2003) are of the opinion that the banks will need to consider the effects of their credit rating on the other lines of business they can provide. If the level of capital is below the minimum necessary to stay in business (and this

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minimum will actually be enforced), then, Flannery (2009) thinks banks will need to do whatever it takes to increase their capital to the minimum.

This “whatever it takes” type of bank behavior, Nakaso (1999) argues could have undesired effects on the economy. It focuses on the effect of bank recapitalization on banks and their existing borrowers. According to Banks (2004) the effect on future borrowers (new business development) is ignored on the basis that new banks, other recapitalized banks, or even foreign banks could provide such new relationship-based funding without a subsidized recapitalization of the majority of existing banks. Recapitalizing a large number of banks, according to Goddrad et al (2004), is desirable only if it protects the value of existing relationship lending and human capital in banks and firms. If the reason to have a wellcapitalized banking system is to ensure that new relationships can be established, then it can be achieved by recapitalizing a few of the best banks.

The analysis here points out that the recapitalization, and its extent, can result in transfers between banks and borrowing firms that can go in either direction. This result is because according to Rivard and Thomas (1997) bank capital influences the bargaining between a bank and its borrowers. In addition, recapitalization can have efficiency effects by influencing a bank’s decision whether to foreclose on its defaulted loans. According to Cooper et al (2003) the amount of current bank capital, affects the behavior of a bank when it

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is required to have a minimum amount of capital in order to remain in business. The same effect occurs when the threat of closure due to low capital comes from market participants who, according to Brissimis et al (2008) may not provide capital or from potentially uninsured depositors who may withdraw deposits.

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    2.5

A Sketch of the Reasons for and Against Recapitalization

The effect of bank capital on bank behavior and borrower welfare, in the views of Neely and Wheelock (1997) depends on some characteristics of the borrower and of the bank. The relevant characteristic of the bank is the presence or absence of relationship lending. Relationship lending implies that the lender has a special skill in evaluating a borrower or in committing to providing a long-term financing policy that a new lender cannot provide. One expects that relationship lending is most important for loans to firms rather than to consumers and when the anticipated response to a potential default, according to Shin (2006) is renegotiation rather than immediate foreclosure of collateral.

Shin (2006) again defines a relationship lender as one whose knowledge allows it to induce the borrower to make larger future payments. As a result, a relationship lender can lend more today than other lenders and is less inclined to foreclose on a loan because it can collect more in the future. However, if the relationship lender is in financial trouble, it may be unable to provide these larger loans or loan extensions. The relationship lender’s special loan collection skill, Rochet (2008) makes loans illiquid and hard to sell or borrow against. If there is no relationship lending, then a bank’s financial situation has no effect on the borrower. Another lender can replace an undercapitalized bank, and the undercapitalized bank can either sell the loan or accept a payment that the borrower raises from borrowing elsewhere. Only when relationship lending is important, according to Aoki et al (1994), is the financial health of

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particular bank lenders of critical importance to their borrowers and to the economy as a whole. According to Hogarth and Thomas (1999), the characteristics of a bank’s borrowers also partly determine the effect and desirability for providing subsidized capital to a distressed bank. The relevant borrower characteristic is the viability of its business. A business, Komidu

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(2008) thinks, is viable if it can commit to paying the relationship lender more (in present value) than the lender can rise by foreclosing today. A viable borrower should not lose access to credit, and it will not lose its access to credit from its bank if the bank is well capitalized. A nonviable borrower should lose access to credit, and in many cases a bank will cut off credit to such a borrower independent of its capital position. Berger (1995) argues that the only case where a subsidized recapitalization may be justified is when the undercapitalized bank is one with lending relationships and viable borrowers. In all other cases, recapitalization is a government subsidy without social value.

2.6

Essentials for a Successful Recapitalization

According to Cooper et al (2003) investors will invest in a distressed bank if they believe the institution has a solid core franchise. That is, despite the problems in the credit or investment securities portfolio, the bank has to have a track record of generating sustainable operating income, have a solid core customer base and serve an attractive marketplace. Size of the institution also matters in determining whether it is a valuable core franchise or not. In the view of Field (2008) many investors will be attracted to distressed banks in or near large metropolitan areas, believing they provide the best opportunities for growth and expansion and investor returns.

But a solid bank franchise in a smaller metropolitan area may have unique favourable

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characteristics if investors can be persuaded that the bank can be used as a “base” for acquisitive growth into larger metropolitan markets or if the bank has a niche business, such as agricultural lending, mortgage banking or specialty finance. The next question is whether, after making realistic assumptions based on the third party credit review, the bank has any positive equity capital remaining. This so-called “burn down” analysis is more complicated

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than simply starting with the holding company’s tangible equity capital and subtracting the losses predicted from a fairly rapid disposition of Non-Performing Assets (NPAs) because tax effects need to be considered, including the deferred tax asset, as well as disposition and carrying costs of the NPAs.

The burn down analysis according to Flannery

(2009) needs to be realistic, indeed

conservative. The equity capital that is left after the burn down analysis is the capital left for the current stockholders and in many cases this analysis proves that the current stockholders will need to suffer severe dilution in order for a new investor to agree to invest fresh capital in the institution. In the view of Shin (2006) new investors will not finance old credit quality problems of the bank. In order for the burn down analysis to have credibility, the third party credit assessment needs to be completed well before the burn down analysis is run. Bank leadership and management post-recapitalization will be another key element to consider.

In the opinion of Banks (2004) institutional investors will want to know who will be running the institution going forward, their track record, and their vision for deploying the new capital and translating it into reasonable investor returns. Normally, new investors will not have confidence in the Chief Executive Officer (CEO) that managed the bank into its current position of distress. Therefore, the board will have to make a serious decision as to whether to replace the CEO prior to launching a recapitalization or acknowledging that once a lead

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investor is identified that a process needs to be put into place to identify and hire a new CEO.

While the CEO may need to go in order to get the recapitalization done, the fate of other members of senior management is not nearly as certain. Other members of senior management may be asked to stay on temporarily or permanently to promote a smooth

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transition during the recapitalization, though the new CEO may have his own management team to bring forward. One can imagine the serious discussions in the boardroom about replacing the CEO as part of a successful recapitalization. But a recapitalization would not be on the table unless the bank was under severe distress and needed a significant amount of capital to survive. Because corporate survival is on the line and after the wall of denial is conquered, boards will typically make the changes that need to be made to avoid receivership.

2.6.1 Creating Stability during Transition From the start of the turnaround program through a recapitalization, stabilizing the franchise needs to be a priority. While stability in many areas is important, no issue is more important than liquidity. Ammann (2001) argues that a bank can continue to function as a going concern even if its capital is all but totally depleted. But if the bank loses access to liquidity sources, it cannot fund its day-to-day operations. Moreover, we have seen countless examples where the regulators have intervened quickly to put a bank into receivership following a oneor two-day liquidity run or simply an unusually high degree of liquidity stress that threatens the bank’s ability to fund deposit withdrawals. Thus, management and the turnaround leader need to establish liquidity reports and a process for addressing liquidity needs over the six- to nine-month time period that a turnaround and recapitalization plan can take to execute.

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According to Froot (2001) capital adequacy is one important area that requires focus and stabilization techniques, though this is much harder to control than liquidity, because swings in capital can be large and dramatic based on credit quality, and capital impairment can occur based on judgment calls rather than counter-party actions. In any event, as a turnaround program is initiated, the turnaround leader will put in place a monitoring and reporting

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process that measures the bank’s capital against the projections on a monthly basis. Stress to capital will be a topic of frequent conversation and once the bank drops to the significant undercapitalized level, the bank regulators will increase their rhetoric and monitoring of capital as well.

This is why it is important early in the turnaround to find as many constructive approaches as possible to enhancing the bank’s capital ratios through balance sheet shrinkage or finding capital accretive opportunities, such as selling securities with a gain or reversing compensation accruals if possible. Every percentage of extra capital in relation to the projected capital thresholds matters as the bank incurs more capital depreciation resulting from credit losses and when buying time is essential to executing on a recapitalization plan.

In the view of Nakaso (1999) keeping employee morale up when the bank faces an uncertain future and rumors are percolating about its survival prospects is a daunting task. It is important that senior management maintain credibility with employees but of equal importance is that they use employees as the first line of defense against deposit runs and customer concerns about the safety of their deposits. There is no magic formula to keeping employees right minded but the turnaround leader must have as a goal keeping employees engaged and hopeful that the bank will survive and that a recapitalization transaction is well planned for and quite possible. Of course soured employee morale can lead to key employee departures, including

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of members of senior management who are best versed in the troubles that beset the company and its future prospects.

Creating as much stability in the employee base as is reasonably possible as a key strategy and a tactical plan to accomplish this goal is essential early on in the turnaround planning.

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Stockholders will get wind of the bank’s stressed financial situation either through communication from the bank or the holding company management or as a result of the publication of a regulatory enforcement action against the bank. According to Berger (1995) early thought needs to be given to a communication plan toward stockholders and a strategy that keeps stockholders fully and honestly informed, at the appropriate time, about key developments affecting their investment.

Disgruntled, complaining or litigious stockholders in the view of Hogarth and Thomas (1999) can distract management and the board from the primary task — saving the company. Indeed litigious stockholders can take steps that interrupt or delay key corporate actions necessary to recapitalize the company, all when time is precious. Accordingly, managing stockholder relations is an essential stabilization challenge.

2.6.2 Managing the Burning “Regulatory” Fuse According to Rajan (2000) when a bank becomes distressed, pressure from its regulators increases and management can find itself spending more time managing to the regulators’ demands than managing the business. This is particularly true when a distressed bank is downgraded in its risk rating and one or more of its regulators impose a regulatory enforcement action. Particularly onerous regulatory enforcement orders can charge the bank by increasing its capital levels over a short period of time or significantly reducing its NPAs

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or both.

According to Bikker and Hu (2002) finding additional sources of capital quickly is the remedy for both ills, but often, if the bank has not moved quickly enough in the early stages of its distress, it simply runs out of time and the bank tumbles fairly quickly in the final

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months into receivership. Fundamental to successful recapitalization transactions is managing the regulatory risk the bank faces, which involves, anticipating the bank examiner’s next major moves and restoring credibility with the bank’s regulators through improved communication, straight talk and delivering on promises. In the triage of a distressed bank, understanding where the bank stands in relation to the budgeted capital standards is critical.

But even more critical Danielson et al (2004) suggest, is having a third party expert forecast balance sheet and regulatory events that can depreciate the bank’s capital levels to below adequately capitalized and the timing of those prospective downgrades. In the opinion of Rochet (2008) this pro forma analysis will give management and the board an opportunity to time the launch of the recapitalization and assess how much time the bank can afford to spend in the preparation stages of the recapitalization. Ideally, the regulators will be presented with a well thought through recapitalization plan that reflects preparation, tangible progress and reasonable prospects for success. Conversely, “concept designs” for a recapitalization plan that reflect a hastily conceived plan will not impress the regulators and will not buy the institution more time.

Early on in the bank turnaround program, Diamond (2001) notes states the CEO or Credit Risk Officer (CRO) needs to assess the regulatory risks the bank faces, prioritize those risks and, as mentioned, find a reliable estimate of the time remaining before the bank becomes

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critically undercapitalized. Armed with this information and forecast, the CEO or CRO can develop a strategy for engaging the regulators going forward and mitigating regulatory risk. In all cases, regulatory risk management is integral to preparing for and successfully accomplishing a recapitalization transaction because, in the end, a recapitalization is a race against time. Many banks have failed because they simply ran out of time.

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Capital and liquidity in the view of Flannery (2005) are precious commodities when a bank is distressed, but time is the most precious commodity. Taking proactive steps in a turnaround program to extend the useful life of a failing bank by three months or six months can make the difference between having sufficient time to prepare for and execute a recapitalization transaction or not.

2.6.3 Finding Investors According to Danielson et al (2004) recapitalizations are only successful when institutional investors put up millions of dollars to save the bank, and finding those investors is challenging. Private equity firms and other institutional investors receive numerous “pitch books” every week, and there is an underlying skepticism that the burn down analysis is unrealistically optimistic. Therefore, to attract bona fide investor interest, a recapitalization candidate needs to support its burn down analysis with credible third party credit intelligence and craft a “use of proceeds” story that differentiates the bank from the hundreds of other banks canvassing the same universe of investors for capital.

In the view of Flannery (2005) the competition for capital is intense and will only grow more so as more banks experience deterioration in capital levels and regulatory pressure and bank failure rates continue to climb. Not all investment banking firms are created equal and care needs to be taken in interviewing and selecting the best firm for the particular situation facing the bank. Con-

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sideration needs to be given to the firm’s prior recapitalization experience, the amount of capital that needs to be raised, whether national or regional institutional investors will be tapped and the capacity and resources of the investment banking firm to manage the capital-raising process at the time the process needs to be launched?

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The investment banking firm in the view of Bikker and Hu (2002) will play a pivotal role in helping the CEO or the CRO (in advance of the new CEO taking over) develop the “story” for the pitch book and position the bank as an attractive investment opportunity. This is so because the investment bankers will understand, unlike most members of senior management or the board, how the private equity community and other institutional investors view these types of transactions in terms of risks and rewards. The investment banker will give advice on the type of security or securities that should be used and the type of offering that will be most effective, including, for instance, supplementing a capital raise from private equity firms with a rights offering to current stockholders.

According to Berger

(1995) these decisions are fundamental to the success of the

recapitalization and undoubtedly will affect the rights and interests of the current stockholders as well as any senior secured lender, trust preferred securities holders and the Treasury. Careful consideration ought to be given to all of these constituencies as the board identifies, with the advice of its financial advisor, the critical pathway for a successful recapitalization transaction. That advice, coupled with legal advice, will support the board’s exercise of its business judgment and is essential to proper management of the board’s fiduciary obligations.

2.7

A Strategic Approach to Cost Reduction in Banking

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An important aspect of recapitalizing banks according to Acquah (2007) is cost reduction, presupposing that if Ghanaian banks would seriously consider their cost structure they should be able to achieve meaningful savings to enhance working capital. According to Ammann (2001) for the first half of this decade, banks largely operated in an extraordinarily benign environment of low interest rates, rising home prices, expanding loan volumes and robust

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economies—all of which created opportunities for generating substantial organic growth and shareholder value.

Most banks were able to steadily improve their cost-to-income ratio during that period. But today, Flamini et al (2008) indicate that high energy prices, sluggish economies and the continuing fallout from the credit crunch have put a damper on the banking industry globally. Many financial institutions have posted huge write-downs, particularly in North America and Europe. Japan's major banks as well as Ghana have all reported weak earnings results, due in part to the sub-prime mortgage meltdown in the United States.

The International Monetary Fund (2010) estimates that losses related to the credit crisis could approach $1 trillion. The short-term outlook is not hopeful. Many North American and Western European financial institutions, for example, according to Flannery (2009) are under severe liquidity pressures due to loan losses, slowing or even negative revenue growth due to the weak housing market, tighter credit standards and sluggish economies. Fortunately, Cooper et al (2003) explain that many banks in the Asia-Pacific region, as well as those in central and Eastern Europe have been largely shielded from the turmoil. But few banks, regardless of location, have escaped the major impact of the current economic downturn: the far higher cost of capital and significant increase in funding costs.

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Efforts to stem the tide by raising capital and additional dividend cuts did not entirely succeed. Increasingly, Danielson et al (2004) say banks are turning to internal costs savings including headcount reductions. Tens of thousands of bank staff have lost their jobs in the past year, and further layoffs have been announced. But traditional cost reduction strategies that worked in previous banking slowdowns, such as in the early 2000s, according to Benink

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et al (2008) would not suffice this time because banks face: uncertainty as to when the bottom of this downturn will be reached, unprecedented levels of operational risk, and highly complex operating models which makes it difficult to reduce costs quickly and sustainably.

It is clear that the recent cycle of easy credit and growth in lending and revenues has masked serious underlying problems. The widespread focus on growth, combined with lack of discipline around operating models, product streamlining, margin control and organizational structures, according to Hofman (2009) has led many banks to build up highly disparate and complex operating models. This, in turn, has resulted in high cost bases as well as inflexible and duplicative operations.

On a more positive note, Rochets (2008) thinks the current environment continues to offer global banks attractive growth opportunities, particularly in emerging markets such as Brazil, Russia, India and China. Therefore, global banks with a presence in emerging markets must be judicious in their cost reduction initiatives, so that their growth agendas do not suffer. Deep cuts in the number of IT personnel, for example, needs to be properly examined since expansion in contemporary banking typically requires significant investment in IT capabilities and support.

2.7.1 Striking the Right Balance

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According to Froot (2001) the cost-cutting and efficiency agenda will vary among regions and from bank to bank. For institutions most affected by the crisis, particularly those in North America and the United Kingdom, tactical cost reductions are the immediate priority. On the other hand, many banks in the Asia-Pacific region are pursuing a broader efficiency agenda focused both on decreasing costs and building capabilities to support growth. Some European

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banks, such as those in Italy and Spain, according to Flannery (2009) are also emphasizing efficiency and growth. To achieve high performance, banks need the right balance between shortterm tactical cost decreases such as headcount reductions, and longer-term strategic cost initiatives such as streamlining processes or outsourcing some non-core functions such as learning, human resources or finance and accounting.

In the views of Hoshi and Patrick (2000) banks that pursue only traditional cost reduction programs will achieve cost benefits quickly. But in the long run, that approach will leave them unable to sustain those cost reductions, resulting in a competitive disadvantage. The key is for banks to evaluate their business model now against scenarios ranging from best case to worst case, and to act before the full impact of the credit crunch plays itself out. Many banks, according to Benink et al (2008) continue to have relatively strong short-term earnings momentum, but the outlook remains highly uncertain.

This leaves a small window of opportunity to tackle the size and flexibility of the cost base, precisely, how banks do this will depend on their operating models and strategic priorities. But whatever route they choose, the long-term winners according to Sufian and Chong (2008) will be those that begin stabilizing and building for the future by adopting flexible operating models to accommodate threats and opportunities as they emerge. Leading banks realize the importance of taking out costs and investing the savings in strategic programs that will help

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them bring products to the market more quickly, interact with customers more effectively and gain competitive advantage.

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    2.7.2 Avoiding Arbitrary Cuts With the onset of an economic slowdown, the temptation is to reassure investors by cutting indiscriminately—10 percent across all departments. However, Sufian and Chong (2008) believe that banks emerging most successfully from previous downturns were not necessarily those making the deepest cost cuts. Instead, the winners focused on optimizing their cost base.

2.7.3 Transforming Cost Reduction According to Hofmann (2009) the path to high performance starts by understanding the bank’s cost anatomy. Banks' cost structures are not spread evenly across operations. Automating and making the back office more efficient will undoubtedly help, but not fully solve, banks' cost challenges. Senior executives looking to remove significant costs must also focus on distribution operations (with nearly two-thirds of the cost base) and enterprise-wide functions.

While in most cases, banks would be well advised to aggressively cut costs in enterprise services and information technology, they should proceed more cautiously in tackling front office costs. Of course, banks' cost distribution varies widely from region to region, and even within regions, but the point is clear: high-performance banks will take a broad and intelligent view when cutting costs to be competitive both now and in the future. Banks in

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Italy, Spain and other European countries that have made substantial progress in streamlining their back offices and IT operations are focusing on making distribution more efficient. North American banks, on the other hand, are still targeting inefficiencies in the back office.

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    2.7.4 Positioning for Growth through Smart Cutting Taking a balanced approach to cost cutting, according to Tanner (1995) requires banks to develop an operating model that is not only cost efficient, but can respond quickly to unforeseen market changes such as further deterioration or an upward trend. As a result, banks will have no choice but to industrialize their operations to combine low costs with high flexibility. To maintain competitiveness over the long term, banks need to move progressively from a substantially fixed-cost base to a more variable-cost base. This provides the organization with the flexibility to “dial up” or “dial down” both cost and capacity in line with market conditions and strategic goals.

Many banks are already embracing this strategy through the selective use of alliances and outsourcing. Accenture recently worked with a leading international bank to consolidate, standardize and ultimately transition parts of its value chain to lower-cost, off-shore locations. The new model generated operating cost savings of up to 60 percent and provided the bank with the ability to scale up volumes rapidly at a low unit processing cost.

In today’s uncertain and fast-changing environment, Hoshi and Patrick (2000) note that a strategic cost-transformation project must proceed quickly. Using pre-built diagnostic tools and assets can shorten the start-up phase, thereby enabling rapid identification of cost reduction opportunities and quantification of the potential benefits to be gained. While the journey will

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be different at each bank, the initiative should be carefully planned encompassing the entire organization. Execution may well be challenging, in light of the scale of change required and the scrutiny by investors, regulators and the media. Working with a wide range of bank clients on these programs, Accenture has observed four common challenges and five keys to successful implementation.

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    2.8

Recapitalizing through the Stock Market

With the Ghana Stock Exchange (GSE) bubbling one should expect variable banks to go public so as to generate additional funding from the Ghana Stock Exchange. Banks such as Ghana Commercial (GCB), Ecobank Ghana Limited, and UT Bank have, in the recent past, taken advantage of the GSE to augment their working capital levels. Corporations raise money on the stock market through primary stock offerings. In essence, they issue or create new shares and sell them for cash. According to Sufian and Chong (2008) these sales do not occur directly on the stock exchange, however, the shares change hands between investors in the stock market soon after they have been issued by the corporation.

2.8.1 Public or Private Offer To understand how firms raise cash in the stock market, Flannery (2005) postulates that one must first grasp the distinction between public and private corporations. The shares of private companies can only be bought in private transactions, and it is usually necessary to identify and contact the persons holding the shares individually. The shares of public companies, on the other hand, can be purchased by anyone in open markets, such as the New York Stock Exchange. It is possible to even buy even a single share with minimal commissions and the most recent prices of the shares are widely available over the Internet.

2.8.2 Initial Public Offerings (IPO)

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Initial Public Offerings are the primary way corporations raise cash through stock deals. In an IPO, a firm with shares held privately, sells shares which are approved to be traded on one or multiple stock exchanges. Therefore, a company that completes an IPO is said to go public. During this process, new shares are created and sold for cash. In essence, the process is quite similar to a Laundromat owner wishing to buy larger washing machines to improve

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profitability and asking a cousin to put up some cash in the business to become a shareholder. In the case of an IPO, new investors are turning into shareholders by putting up cash, which the company often uses to enlarge the business.

2.8.3 Underwriters According to Madura (2008) it is important to note that the share sales during IPOs do not actually take place in the stock market. Instead, the process is handled by investment banks, also called underwriters, who carefully analyze the firm, help the company file the legal papers and then guarantee to sell a certain number of the firm's share to investors, such as mutual funds and insurance companies that hold large amounts of stocks. If the targeted number of shares cannot be sold, the investment bank will usually step in and buy the unsold stock, thus ensuring that the required cash will always be raised. After the IPO is completed, the new shareholders will sell some of their holdings, or if they are particularly pleased with their decision, buy more in the stock market, where smaller investors can also purchase stock.

2.8.4 Secondary Offering Sometimes, corporations require additional cash after completing their IPOs. The sale of additional shares by an already publicly traded company according to Froot (2001) is referred to as a secondary offering. The process is usually easier since investors will already be familiar with the firm, and the legal requirements for public trading will already been met.

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Companies are only likely to attempt to and succeed in secondary offerings if the stock has performed relatively well following the IPO. A firm whose stock price performance has largely disappointed investors according to Rajan (2000) will usually look for other sources of funding, such as bank loans.

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    2.8.5 Raising Capital According to Cooper et al (2003) financial markets attract funds from investors and channel them to corporations - they thus allow corporations to finance their operations and achieve growth. Money markets allow firms to borrow funds on a short term basis, while capital markets allow corporations to gain long-term funding to support expansion. Without financial markets, in the view of Kashyap et al (2008) borrowers would have difficulty finding lenders themselves. Intermediaries such as banks help in this process. Froot (2001) notes that, banks’ take deposits from those who have money to save, and then lend money from this pool of deposited money to those who seek to borrow.

Banks popularly lend money in the form of loans and mortgages. More complex transactions than a simple bank deposit require markets where lenders and their agents can meet borrowers and their agents, and where existing borrowing or lending commitments can be sold on to other parties. A good example of a financial market is a stock exchange. A company can raise money by selling shares to investors and its existing shares can be bought or sold.

2.9

Effects of Sound Bank Capital on Bank Behaviour

According to Danielson et al (2004) a bank’s capital structure directly influences its ability to raise funding for its relationship loans. Because higher capital implies higher rents to bankers,

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a high level of required capital reduces the sum of the values of deposits plus capital that a bank can raise from outside investors. Such a limitation on a bank’s ability to fund its loans, according to Nakaso (1999) can indirectly influence its behavior towards borrowers—a bank that cannot raise sufficient capital may limit its ability to make or renew loans to its

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relationship borrowers. Consider a bank that has developed a lending relationship with a vi.

able borrower.

Hoshi and Patrick (2000) state that a well-capitalized bank will operate with a long horizon, while an undercapitalized capital bank will be forced to try to immediately meet its capital requirement. If a bank can get a larger immediate payment by forcing foreclosure, Bikker and Hu (2002) think it may have to do so even if it yields a smaller present value than would be allowing a borrower more time to pay. An undercapitalized bank, in the view of Hoshi and Patrick (2000) will be unwilling to wait to collect loans over the long run. It may liquidate the borrower’s collateral when a better-capitalized bank would let the borrower continue to operate. In addition, because it is prone to liquidate, an undercapitalized bank may be able to extract very large payments from its relationship borrowers. In effect, such a bank conducts an auction for the right not to be liquidated.

In the opinion of Shin (2006) and Banks (2004) an undercapitalized bank’s incentive to liquidate comes from its need to reduce its portfolio of illiquid loans. This according to Abbosoglu et al (2007) will satisfy a capital requirement imposed by the market: for example, the need to avoid the threat of a run by depositors. If the capital requirement is imposed by regulators and is based on regulatory book capital, then an offsetting effect may dominate. Even if foreclosure produces a larger present value than extending the loan, it may lead to a loss relative

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to the book value of the loan.

For very low levels of book capital, relevant to some banks in advance countries, Kashyap et al (2008) argue that the bank would not foreclose or accept a partial payment because it would cause a write down in book capital that would close the bank. In this case, the bank

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would not foreclose on any loans. The effect of bank capital identified here is on banks with relationship loans to viable borrowers. The implication therefore is that banks without such loans should be allowed to fail.

2.10

Foundations for the Link between Relationships, Illiquidity, and Bank Capital

According to Flannery (2009) there are three types of agents: a borrower who needs funds for a project, a banker who is a relationship lender and has special skills in collecting loans from the borrower, and an outside investor who has no loan collection skills. Outside investors, in the view of Cooper et al (2003) can hold deposits or non-deposit capital issued by the bank. They can hold loans, but they have no skill in collecting the loans.

The borrower has substantial bargaining power with the bank, and according to Goddard et al (2004) can make a take-it-or-leave-it offer to reschedule payments to the bank. As a result, the bank cannot force the borrower to pay more than the value for which the collateral can be liquidated. This assumption is only for simplicity. So long as the amount that a lender can collect is an increasing function of the value the lender obtains from liquidation, Flamini et al (2009) believe that qualitatively similar results will follow.

2.10.1 Negotiations between the Bank and the Borrower Froot (2001) notes that the effect of the bank’s financial position on its dealings with the

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borrower describes the dealings between bank and borrower when there is no such constraint and the banker is negotiating unconstrained (as if negotiating for his or her own personal account). As postulated by Hart and Moore (1994), a financial contract is only considered only if it specifies that the borrower owns the machinery and has to make a payment to the

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banker, failure which the banker’s possession of the collateral and the right to use it as he or she pleases. Without the borrower’s human capital, Hassan and Bashir (2003) are of the conviction that no current cash flow is produced (apart from the value of liquidation). Bargaining between bank and borrower just before the borrower is due to produce, according to Demirgue and Husizinga (2001) takes the following form: the borrower offers an alternative payment to the one contracted in the past and commits to contribute his or her human capital if the offer is accepted (and not to contribute it if rejected). The banker can (1) accept the offer, (2) reject the offer and choose to liquidate the project immediately, or (3) if the bargaining occurs on or before reject the offer (implying that the borrower does not produce during this period), retaining the option to liquidate.

This according to Rajan (2000) gives all the bargaining power to the borrower, apart from the banker’s ability to exercise control rights to liquidate. If the borrower’s offer is accepted, the borrower contributes his or her human capital, and the offered payment is made. It would be assumed that all payments specified in the loan contracts can be collected by the bank using its threat to liquidate the collateral, and will not further analyze the negotiation between bank and borrower.

2.10.2 Relationship Lending

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Rochet (2008) suggests that when the bank is a relationship lender, it is the only lender that can force the borrower to repay the maximum value. Other lenders can collect less. For simplicity only, it assumes that other lenders would collect zero if they attempted to collect the loan (all results follow when other lenders could collect a positive but smaller amount than that collected by the bank). As a result, a loan would be worthless without access to the

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bank’s loan collection skills. A relationship lender cannot raise the full present value that it can collect from the borrower by issuing capital (i.e. non-demandable claims) today.

It follows then that the relationship lender’s specific skills are needed to extract repayment from the borrower. The only sanction available to outside capital holders is to dismiss the bank and replace it with one that cannot collect anything from the borrower. So, the original relationship lender can, and will, appropriate a rent for its specific skills. In application to banks with many employees, one can interpret the relationship lender’s rent as excessive employment of bankers. Assuming, in bargaining, the relationship lender extracts half the additional amount recovered from the borrower, it will keep a rent of one-half and only pass on the other half to outside holders of capital.

According to Barney (1991), assuming that the relationship lender can collect from the borrower and has raised exclusively non-deposit capital from outside investors, if the banker threatens to quit and not to collect the loan, both the banker and outside capital holders get zero. The relationship lender can sell the loan or issue capital against it for only a fraction of present value of the payments that it can collect. If there were no relationship, and anyone could collect the full amount of the loan, it would be liquid: the bank could issue capital up to the full value of the loan or sell it for the full amount. With such a liquid loan, outside capital holders would replace the banker or sell the loan unless the banker’s rent was zero, and the banker would not be able to

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threaten to earn a rent.

2.10.3 Discipline from the Threat of a Bank Run In the event that the banker finances illiquid loans by issuing uninsured demand deposits, Goddard et al (2004) argue that these cannot be renegotiated next period without triggering a

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run, which removes the loan from the banker’s control. Because of the “first come, first served” aspect of uninsured demand deposits, no depositor would want to make a concession if the bank still had assets. Each depositor according to Hassan and Bashir (2003) could force the bank to sell assets to pay in full (until the bank runs out of assets). And once the loan is sold, the banker can earn no rents. The banker will always pay deposits if feasible. If the level of deposits and capital is set when it is known that the banker can collect exactly from a borrower, the problem with a riskless loan’s illiquidity can be solved: set deposits equal to and capital equal to zero.

The problem with capital, according to Levine (1998) is that it does not provide the banker as hard a budget constraint as demand deposits. The higher the capital-to-deposit ratio, Rochet (2008) says the higher the rent collected by the banker. However, when loans are risky, Ammann (2001) notes that a positive level of capital is needed to avoid the costs of a high probability of bank failure. With a positive level of capital needed, the illiquidity problem will remain. The problem is that demand deposits are a very rigid form of financing. This is good in that it disciplines the banker and enables him to commit to pay out. Bikker and Hu (2008) however think it is bad if there is sufficient uncertainty in bank asset values because a drop in bank asset values will precipitate a run, dis-intermediating the banker, and further reducing their value.

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2.11

Disciplines from the Threat of Closure due to Capital Requirements

According to Ito and Saski (1998) an effect similar to the threat of runs occurs with insured deposits if deposits are insured and the deposit insurer requires prompt corrective action to enforce a minimum level of capital (and sticks by this threat to close the bank unless it raises sufficient capital in the market). When the deposit insurer and the government are prohibited

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from providing subsidized capital to the bank, the bank is under the same incentives as the threat of a run, and rents are an increasing function of the amount of capital required. Consider a bank with a given level of capital, if it incurs losses beyond a given amount, its uninsured depositors will run, closing the bank. If the same loss leads regulators to close the bank, then the incentives are identical.

2.12

Challenges of Recapitalization

According to Hofmann (2009) western banks have been hesitant to loan money to each other and to businesses, since the 2008 financial panic where the investment bank, Lehman Brothers collapsed. American and European central banks lowered interest rates in response, allowing banks to borrow cheaply in the absence of private sector confidence. The European Central Bank has been more prudent than its American counterpart, the Federal Reserve, and had not bought sovereign bonds, from Italy and Spain, until this summer. The Fed, by contrast, has been financed American deficit spending by printing trillions of dollars for more than two years. Both have supported banks in the expectation that they would continue to extend business loans and mortgages.

They have not really—not enough to stir an economic recovery anyway because they realize that the market is still full of dislocations and excesses. In the view of Flannery (2009) if there were no central banks or if they had not intervened, those dislocations and excesses, built up in

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an era of “cheap money” when financial institutions knew that they were “too big to fail,” would have been cleared out in 2008 when Lehman collapsed and threatened to sink half of Wall Street with it. Prices that did not reflect real demand, especially in housing, where government policy had encouraged people without sufficient income to apply for mortgages, would have deflated—considerably.

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Default and deflation however, according to Sufian and Chong (2008) along with potentially huge losses in personal savings, are politically unacceptable. So instead of failing, the institutions that created the crisis are now on life support while the housing market and construction in many Western countries, and construction with it, is stuck. Homeowners are not willing to lower their expectations and buyers are not able to purchase at the prices they charge.

According to Froot (2001) recapitalizing banks after they bought worthless Greek bonds when they should have known better is not just wrong; it is not going to work. If write offs are also expected for Portugal and maybe Italy and Spain, investors will realize that no matter how big the EFSF is made to be, the solvent countries in the north of Europe cannot afford to compensate them for their losses indefinitely. If the ECB also turns on the printing presses (which it doesn’t want to), that will be the clarion call for investors to get out. Interest rates on peripheral bonds will skyrocket.

The political willingness to reform structurally rather than cut several billions of Euros in annual spending is virtually nonexistent in Greece and Italy. These states are already bankrupt and waiting for Germany to pull the plug. It is king in the land of the blind (or broke actually) but does not have the cash on hand to bail out half of Europe. Some countries just would not change until they have hit bottom. The longer banks have to wait for the inevitable,

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the more obstinate they will be to invest in enterprise or loan to other banks because they do not know which will survive the reckoning and which would not. Recapitalization will thus make the problem worse by providing a false sense of security that cannot last.

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    2.13

Prospects of Recapitalization

According to Bank of Ghana (2012) the banking system continues to show steady growth in assets and profitability although at a relatively slower pace than a year ago. The source explained that when players in the industry adequately step up their capital bases, there is every indication prospects in the industry will improve tremendously to the delight of all stakeholders.

Recapitalization of the country’s commercial banks, according to Belnye (2012) will enable them to support important sectors of the economy. Belnye (2012) creates the awareness that ‘financing of the cocoa crop is one activity that requires lumpy funds over a short timeframe every year’’. Speaking at a day’s seminar on banking recapitalization in Ghana in Accra, the deputy head of banking of the Bank of Ghana indicated that funding to support the cocoa sector is usually sourced offshore partly because of the banking systems inability to meet requirement. The Central Bank (2012) further explained that “looking at the minimum lifting of crude oil that is likely to be associated with the up-coming oil industry our banks will be hard pressed if they are to participate in this activity at their current levels of capital.” “It therefore makes sense to recapitalise our banks and position them to take active role in these economic activities”.

In the view of the Central Bank (2012) regulatory capital provides a cushioning for absorbing

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potential losses and as such a critical component for ensuring the safety and soundness of the financial system. Amissah-Arthur (2012) also adds that generally well-capitalised banks are better positioned to grow their lines of business compared with others which are under capitalised.

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Governor Amissah-Arthur explained further that judging from the crucial role that a vibrant banking sector plays in initiating and sustaining economic growth, the Central Bank will continue to pursue policies that will create the enabling environment for the banking sector to operate effectively and efficiently. Winful (2012) also notes that given the importance and prospects of recapitalizing Ghanaian banks, promoters of the players in the financial services environment should deem it necessary to sensitise major players in the industry on how best they can meet the new minimum capital requirement. He said it is important that banks are adequately empowered to enable them to effectively address pressing financial issues, particularly funding development projects in the country.

2.14

Summary and Conclusion

Considering the important role that commercial or universal banks play in the socioeconomIC development of a country like Ghana, it is logical for the industry regulator to ensure that players are well capitalized so as to meet the expectations of stakeholders. Recapitalizing banks may be effected through shareholders increasing their equity or visiting the stock exchange for fresh funding. Banks could also look inwardly to cut cost especially in ICT applications where an external consultant could be engage periodically rather than maintaining a specialist on the pay roll. Recapitalizing could also be handled through mergers and acquisitions.

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In Ghana for instance, Ecobank has taken over The Trust Bank (TTB) while Bank of Africa has also concluded negotiations for ‘swallowing up’ Amalgamated Bank. Recent report from the central bank (2012) reiterated in no uncertain terms that the regulatory body had no intention of compromising on its GH¢60million recapitalization directive which comes into effective by the close of 2012. The central bank advised players in the industry to visit the

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stock exchange to augment their liquidity levels. This presupposes that a lot more local banks will merge, look for strategic partners or simply fold up. A well-capitalized bank is certainly a big asset to a developing country like Ghana where small scale, medium scale, and large scale entities must be helped financially in order to help the economy to grow as anticipated .

It is becoming increasingly clear that management of these banks reserve the responsibility of maintaining contingency plans toward mitigating the harmful effect of any short term liquidity eventuality. Management should ensure that investments in various portfolios are well diversified so as to minimize risk factors associated with their operation. Management ought to strategize on effective monitoring of various shades of facilities granted to stakeholders especially customers and competitors. There is the need to thoroughly conduct a health check on the customers prior to allowing a draw down on facilities. Banks should also ensure that their pricing techniques fully incorporate various shades of risk factors. With these strategies in place banks should be able to maintain adequate liquidity levels to achieve

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their corporate goals and objectives.

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    Chapter Three Research Methodology 3.0

Introduction

This chapter describes the methodology to be used for the study. It outlines the research design, the study population, sampling procedure, research instrument, data collection strategy, ethical considerations and methods of data analysis.

3.1

Research Design

According to Aryeetey et al (2000) research design is not related to any particular method of collecting data or any particular type of data. Any research design can, in principle, use any type of data collection method and can use either quantitative or qualitative data. Research design, in Gelb and Gelb’s (1999) views, refers to the structure of an enquiry. It is a logical matter rather than a logistical one. The central role of research design is to minimize the chance of drawing incorrect causal inferences from data. Design is a logical task undertaken to ensure that the evidence collected enables us to answer questions or to test theories as unambiguously as possible. When designing research, Tourabgeau (2004) believes that it is essential that we identify the type of evidence required to

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answer the research question in a convincing way. This means that we must not simply collect evidence that is consistent with a particular theory or explanation. Two approaches identified by Zikmund and Babin

(2010), namely Positivist and

Phenomenological, are to be adopted by the researcher in his research design. The positivist consists of facts and quantitative analysis to test formulated hypotheses or research questions

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and phenomenological focuses on meanings and qualitative analysis to develop ideas from information to be gathered. Qualitative research according to Strauss and Corbin (2000) is the collecting, analysis and interpreting of data by observing what people say or do. Quantitative research involves the use of structured questions where response options have been predetermined. Pluralistic research in the view of Winsome and Johnson (2000) is a combination of both qualitative and quantitative research where the advantages of both can benefit the study. The researcher plans to use the pluralistic approach, which ensures that qualitative pieces of information picked up by the questionnaire are quantified and analyzed to realize the desired impact on the study.

3.2

Study Population

The study was conducted in the Accra Metropolis which is within the Greater Accra Region. The metropolis covers an area of 300 square kilometers with an estimated population of about 4,358,263. The city reflects modern edifices in terms of infrastructure including hospitals, schools, foreign missions, high ranking hotels and the head offices of almost all major organisations and banks in the country.

The primary data reflects the current state of the banks and steps being taken to meet the December 2012 recapitalization deadline. This comes from the population for this study

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which essentially consists of key personnel from six (6) of the commercial banks and their headquarters located in the Accra business district. According to Strauss and Corbin (2000) primary research involves collecting firsthand information on the current state of the banks and measures being put in place to meet the deadline, that is, information to meet the aspirations of the study . The key personnel were drawn sampled from the corporate banking

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department, treasury department, finance and accounting department, audit or internal control department, executive wings and the marketing departments. Table 3.1:

Distribution of Respondents

Banks

Population

Officers

Management

Sample size

Sample Size

Total

National Investment Bank

130

20

5

25

Prudential Bank

90

15

3

18

Ecobank Ghana

150

22

7

29

Ghana Commercial Bank

200

29

10

39

Merchant Bank

120

19

4

23

Zenith bank

80

13

3

16

770

118

32

150

Total

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Source: Researcher’s Estimation (2012)

Secondary Data Secondary data according Henderson (2007) pertains to information that has already been published, such as company records, Government reports newspaper and journals on the recapitalization of commercial banks. In the views of Gelb and Gelb (1999) secondary data is 48

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the facts and information based on research of primary data which includes published and unpublished work. Secondary data is also composed of written materials such as researches, articles, bulletins and books which are readily accessible to enhance a research. Secondary data for this study specifically came from financial statement of banks, statistical reports from both the central bank of Ghana, Statistical Service of Ghana, Institute of Bankers, Ghana’s magazines, handouts, flyers and some newspaper articles on the subject. The fact that secondary research is published without the specific needs of the decision being taken into consideration, Zikmund and Babin (2010) point out that caution must be exercised when using such information. The information provided through secondary research can be biased, partial and of poor quality. Rarely is secondary information sufficient in itself to provide accurate information from which a decision can be made.

3.3

Sampling Techniques

Purposive sampling was combined with stratified sampling techniques by the researcher in the selection of the respondents for the study. According to Zikmund and Babin (2010) purposive sampling is a non-probability sampling technique in which an experienced individual selects the sample based on his or her judgment about some appropriate characteristics required of the sample member. Researchers using purposive sampling usually

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select samples that satisfy their specific purposes even if they are not fully representative. The purposive sampling technique enables the researcher to approach some management members, heads of department and officers of the banks to solicit their views aimed at enhancing the direction of the study.

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Reference is made to the stratified sampling technique because each bank was regarded as a unit, group or a stratum (plural strata) from which respondents were selected by virtue of the non-probability sampling or purposive sampling. Purposive sampling technique is necessary because it gives the researcher the opportunity to directly approaching personnel of the banks with the relevant experience and knowledge on recapitalization arrangements being pursued by their banks.

3.4

Research Instrument

The questionnaire technique was employed as the research instrument for the study because the bank officials are learned people who have no problems responding appropriately to the questionnaire. Moreover the questionnaire technique gave the respondents the necessary flexibility to answer the questions at their convenience. The questionnaire examined the demographic features of the respondents before probing into issues relating to recapitalization of the commercial banks. Specifically the interaction with management members and bank officials covered issues such as what efforts the banks are making to meet the new minimum capital levels? What can be done internally by way of reducing cost to improve liquidity? How the liquidity positions of the bank are? What restrictions are placed on banks by the central bank in mobilizing more funds?

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What efforts are being made to secure strategic international investors? What role could the Ghana Stock Exchange play in addressing the challenges faced by banks in meeting the new liquidity levels? The researcher was of the conviction that answers to these questions would help achieve the objectives of the study.

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    3.5

Data Collection

The investigator agreed on a two week deal with the respondents within which each interviewee was expected to complete answering the questionnaire. Periodic phone calls to the respondents reminded them about their responsibility to the study. At the scheduled time the researcher went round to pick up the answered questionnaires. Adequate care was exercised to ensure that all relevant questions were fully answered except areas that did not apply to the respondents. The researcher hoped to retrieve a reasonable proportion of the distributed questionnaire.

3.6

Pretesting

To ascertain the clarity of the questionnaire, a preliminary questionnaire was first considered appropriate to pre-test selected respondents. This pilot study provided insight into how respondents understood the questions. This then lead to the rewording of some questions in order to remove any ambiguity.

3.7

Data Processing and Analysis

The data was collated, edited, organised and coded. This was subsequently keyed into the

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Statistical Package for Social Sciences (SPSS), a statistical analysis software. According to Zikmund and Babin (2010) SPSS was founded in 1968 and its sales exceeded $224 million in 2009. SPSS is commonly used by university business and social science students. SPSS is very user friendly and gives the user the option of using drop-down menus to conduct analysis rather than writing computer code.

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In the past, data entry was an issue as specific software required different types of data input. Today, however, Deal (2005) is of the conviction that all the major statistical software packages including SPSS can work from data entered into spreadsheet. By clicking on “charts” in the SPSS tool menu, the variety of charts that can be created can be seen. The key place to click to generate statistical results in tabular form is “analyze”. Here, it is easy to see many types of analysis than can be created. In this study the choice found by clicking on “analyze” and then “descriptive statistics” are of particular relevance. The SPSS user can ask for any number of statistics and percentages to be included with any particular level of output by clicking on the corresponding options. Pie charts, graph, bar graphs, frequency distribution tables have all been neatly featured in chapter four with interpretations. In the area of analyzing the financial statements to evaluate the current financial position of the banks, the researcher employed the TOPAZ accounting software which aided the computation of the accounting ratios to evaluate the financial development of the banks over the last three years towards meeting the new operating capital requirement of GH¢60 million. This was achieved by deducting all current (financial) liabilities, that is, customers deposits and borrowings from the financial assets especially cash with central bank, investment in government securities, loans to others banks, loan and advances to customers short term investments and other trading assets.

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The results have been featured in the fourth chapter. Perhaps it must be worth indicating that Topaz Financials is an extensive product covering all aspects of Financial Accounting. As well as being functional and feature rich the product is also highly scalable, meeting the needs of medium and corporate sized companies across most industry sectors as well as Education and Public Sector organisations.

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    3.8

Ethical Considerations

In every study, it is conventional and necessary to take a number of ethical issues into consideration in order to obtain the best results. The researcher conducted himself in such a manner as to gain respect and acceptability from the respondents. He also endeavoured to be

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truthful to the interviewees in order not to compromise any ethical standards.

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    Chapter Four Analysis of Data and Discussion of Findings

4.0

Introduction

This chapter presents the analyzed data, their interpretation and discusses the findings. It begins by analyzing the demographic features of respondents, prior to discussing issues relating to the challenges of mobilizing adequate cash to recapitalize the bank. Discussions will also touch on issues relating to generating funds from the Ghana Stock Exchange (GSE) in addition to examining how cost can be reduced by the banks to shore up their liquidity.

4.1

Analysis of Demographic Features of Respondents

4.1.1 Analysis of Respondents Gender and Age Table 4.1:

Frequency Table Showing Age and Gender of Respondents Age range

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Below 25 year

Male

Female

Frequency Percentage Frequency

Percentage

(%)

(%)

-

-

26-35

30

20

12

8

36-45

48

32

24

16

46-55

12

8

12

8

Above 55

6

4

6

4

Total

96

64

54

36

Source:

Field Data (2012)

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From table 4.1 above, out of the 150 respondents 96 (64%) are male while 54 (36%) are female. Forty-eight out of the ninety-six males constituting 32% of the entire sample are aged between 36 and 45 years. Thirty males forming 20 percent of the sample are aged between 26 and 35 years while twelve males (8%) of the study sample are aged between 46-55 years. Six males (4%) of the sample were above 55 years. Out of the fifty-four females twenty-four forming approximately 16 percent of the entire sample are aged between 36 and 45 years. Of the sample twelve females (8%) are aged between 25 and 36 years and another twelve aged between 46 and 55 years. Six more females (4%) are above 55 years of age.

It can be inferred from the above analysis that one hundred and fourteen (114) out of the one hundred and fifty (150) respondents constituting 76% are between the ages of 26 and 45, thus with the right of motivation strategies in place the banks could continue to enjoy the service of these officials for the next fifteen to thirty-three years given the prevailing retiring age of 60 years.

4.1.2

Respondents Highest Academic Qualification

Table 4.2: Frequency Table Showing the Highest Academic Qualification of Respondent

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Types of Qualification

Frequency

Percentage

(Out of 150)

(%)

GCE ‘A’ and ‘O’ Levels

-

-

HND/Diploma

-

-

First Degree

12

8

Master’s Degree

36

24

Degree with Professional Qualification

78

52

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    Professional Qualification only

24

16

Total

150

100

Source: Field Data (2012)

From table 4.2 seventy-eight respondents constituting (52%) have various levels of university degrees together with professional qualifications in Banking, Planning, Accountancy and Marketing. Thirty-six (24%) respondents possess master’s degrees in banking, finance and others. Twenty-four (16%) respondents also hold Professional Certificates and are Chartered Financial Analysts, Certified Dealers of the stock exchanged or Chartered Accountants. Of the one hundred and fifty respondents twelve (8%) possess as the highest academic qualification, first degrees in Accounting and Banking and Finance. There were no GCE ‘A’ or ‘O’ level certificate, Higher National Diploma or Diploma holders.

It is obvious from table 4.2 that 138 out of the 150 respondents (92%) are bank officials entrusted with working capital management responsibilities of the banks have various levels of higher university degrees and respectable professional qualifications which equip them to discharge their responsibilities equitably. A discussion with some respondents indicated that their Banks have helped in financing their training and skill development. In the view of Kemske (1998), in companies, especially those that rely more on employee information, creativity, knowledge, and service rather than on production machinery, such as banks, success depends

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on the ability to manage human capital.

Bollander et al (2001) explain that human capital refers to the economic value of the combined knowledge, experience, skills and capabilities of employees. To build human capital it is important that Human Resource Management (HRM) develops strategies to find

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the best talent, enhance their skills and knowledge with training programmes and opportunities for personal and professional development, provide compensation and benefits that enhance the sharing of knowledge and appropriately reward people for their contribution to the organization.

4.1.3 Respondent’s Service Duration with their Banks Table 4.3: Frequency Table Showing the Service Duration of Respondents Service Duration

Frequency

Percentage

(Out of 150)

(%)

1-3

-

-

4-6

12

8

7-10

60

40

11-15

42

28

16-20

24

16

Above 20 years

12

8

150

100

Total Source:

Field Data (2012)

Table 4.3 shows that sixty out of the one hundred and fifty (40%) respondents have worked with their banks for between 7 and 10 years. Forty-two (28) respondents continue to help the

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banks implement their strategic vision after being hired for periods between 11 and 15 years. Twenty-four (16%) respondents have served their banks for between 16 and 20 years while twelve (8%) respondents have worked with their banks for over twenty years. Another twelve (8%) have been on their banks payroll for between 4 and 6 years. It is evident from the foregoing that 138 out of the 150 respondents constituting 92% have served their banks from 57

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7 to over 20 years. This presupposes that staff motivation and retention strategies of the banks are really on course.

According to Podoslske (1998) variable compensation are key motivational tools and are becoming more common than fixed salaries at many companies. The local industrial unions of the banks have a ‘voice’ in the ‘texture’ of compensation package paid to employees. This is corroborated by Balu (2000) who explains that many organizations give employees a voice in how pay and incentive systems are designed, which increases motivation by increasing employees’ sense of involvement and control. When workers feel a great sense of dignity and purpose in their jobs, the incidence of labour turnover reduces significantly.

4.2

Issues Relating To Challenges of Mobility of Extra Cash for Recapitalization

In order to present a fair view of the challenges confronting the banks in their recapitalization effort, the researcher deemed it appropriate to evaluate their current financial position and further examine the various strategies they are adopting to mobilize extra cash.

4.2.1 Current Financial Position of Banks The study attempted to evaluate the financial development of the banks over the last three years towards meeting the new operating capital requirement of GH¢60 million. This was achieved by deducting all current (financial) liabilities, that is, customers deposits and

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borrowings from the financial assets especially cash with Central Bank, investment in government securities, loans to others banks, loan and advances to customers, short term investments and other trading assets as shown in Appendix II. Table 4.4 depicts a summary of operating capital for a 3 year period.

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    Table 4.4:

Operating Capital of Banks

Bank

2011

2010

2009

GH¢,000

GH¢,000

GH¢,000

314,993

260,406

286,360

*

268,912

337,500

46,745

63,490.0

57,773

*

26,393.2

28,342.3

44,516

46,963

39,686.5

*

88,720

70,656

Ecobank GCB Merchant Bank Prudential NIB Zenith Source:

Financial Statement of banks for various years

* These figures are yet to be published by the banks. The trend in growth of operating capital of the various banks has been graphed in figure 4.1. 

Figure 4.1:

A graph showing the trend in the developing of operating capital of the

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millionss

various banks 400 380 360 340 320 300 280 260 240 220 200 180 160 140 120 100 80 60 40 20 0

(337)    (314) (268)

Ecobank

(286)

GCB

(260)

MBG Zenith Bank NIB PrudentialBank (88.7) (70.5) (57) (46.9) (28.3)

2009

 (63.5) (44.5) (44.5)

(46.8)

(26.4)

2010

2011



Source:

Analysis of Financial Statements for various years

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It can be gathered from Figure 4.1 that Ecobank, Zenith bank and GCB have operating capital well in excess of the minimum requirement of GH¢60 million. This has been corroborated by Governor Amissah-Arthur (2012) who confirmed that all the foreign banks have been able to meet the new minimum capital requirement together with Ghana Commercial Bank and Ecobank. Perhaps it is worth indicating that Ecobank and GCB have been listed on the Ghana Stock Exchange pointing to what could be a potential avenue for helping struggling banks to recapitalize.

NIB, MBG and Prudential banks are yet to find their feet to make the capital mark. According to Kuranchie (2012) serious efforts are being made by management of NIB to shore up its operating capital level before the close of the year. Kuranchie (2012) indicated that a process has been “set in motion that will lead to the preparation of an investor memorandum aimed at raising new capital to the tune of US$ 125 million subject to approval of the Ministry of finance” since the government is a majority shareholder. The NIB’s chief executive explained further that the bank is gradually rediscovering its position within the banking arena as the bank moves from loss making to profitability.

Merchant Bank Ghana limited is also experiencing serious challenges in meeting the new minimum capital requirement as the bank’s fortunes continue to dwindle. At a time most players in the industry are doubling the quantum of their performance. The bank posted a loss

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of GH¢23 million in 2011 and this is largely attributable to huge non-performing assets of GH¢16 million which adversely affected the liquidity position of the bank. It is therefore not surprising that its operating capital dropped from GH¢63.5 million in December 2010 to GH¢46.8 million in December, 2011. The bank, according to Tetteh (2012) is also in serious

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negotiations with South African investors for a merger or takeover arrangement aimed at beefing up the financial base of the bank.

Prudential bank’s existing operating capital which hovers around GH¢26 million is far below the new mandatory minimum capital requirement handed down by the industry regulator. Officials of the bank appeared tight lipped as to how the bank was strategizing to meet the new capital level-with barely seven months for the new capital regime to come into operation. The expectation is that management would allay the fears of its human capital over the seemly gloomy future of the bank. Perhaps in the next few months, the management will come out boldly with its strategies for saving the bank from sinking within the industry come December, 2012.

From the forgoing, it is abundantly clear that the purely indigenous banks, notably Prudential, National Investment and Merchant banks are sensing their limitation in honouring the new minimum capital adequacy requirement of the Central Bank, although Ghana Commercial bank, as expected that is the largest bank has already exceeded the new minimum mark. It also came out clearly from the above that the foreign banks like Ecobank and Zenith have already met the new minimum capital requirements. It is from this background that AmissahArthur (2011) suggests that local banks should seriously consider mergers and acquisitions as

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a viable strategy towards meeting the Central Bank’s requirements on recapitalization.

4.2.2 Views on Strategies for Mobilizing More Cash The study sought to enquire about the road map for mobilizing adequate cash for the smooth operations of the banks and the responses have be ranked in table 4.5.

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    Table 4.5:

Frequency Distribution Table on Extra Cash Mobilization Efforts of Banks Cash Mobilization Strategy

Lobby to manage international concessionary rated project

Frequency

Percentage

(Out of 150)

(%)

143

95.3

138

92

128

85.3

116

77.3

110

73.3

74

49.3

72

48

funds Arrange for organization to lodge their provident and other staff funds with the banks Design flexible package for ‘Susu’ collectors to deposit funds with banks Marketing officers storm offices, markets, etc for customer drive activities Special desk for SMEs Enlist with the Ghana Stock Exchange for an initial public offer (IPO) so as to rope in more funds towards recapitalizing the banks Make right share issue offer for existing shareholders to increase their equity Source:

Field Data (2012)

Table 4.5 Shows that 143 out of 150 respondents constituting 95.3% are of the conviction that most banks are lobbying to manage international concessionary rated project funds so as to improve their prospects of making more money to boost their agenda towards meeting the new capital adequacy levels introduced by the Central Bank. According to Adu-Mante (2007) with the first

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Millennium Development Goal (MDG) being poverty reduction, a good number of international donor agencies are designing financial packages for shoring up living standard in developing countries and that banks act as conduits or intermediaries for disbursing such funds to the beneficiaries.

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Essien (2005) also confirms that Ecobank benefited immensely from the Private Enterprise Expert Development (PEED) facility that it disbursed to enhance the informal sector export activities. Such international funds according to Oteng-Gyasi (2008) come with very attractive interest rates; therefore industrialists see them as business angels. One hundred and thirty-eight (92%) respondents also felt that their banks pursue the strategy of negotiating with organizations to lodge their provident and other staff social development funds with them and since these funds often span over a considerable number of years it goes a long way to improve upon the liquidity levels. Flannery (2009) has noted that although provident funds and other staff “insurance” funds can be expensive in terms of associated cost they help in no small measure towards stabilizing the liquidity levels of a bank.

One hundred and twenty-eight (85.3%) respondents pointed out that in order to mobilize more funds their banks, are in partnership with some ‘susu’ operators who deposit their periodic cash collections with the bank in return for concessionary rated loans for onward disbursement to their ‘Susu’ contributors. According to Mwaneketwe (2007) Barclays Bank designed an attractive package for its ‘Susu’ developing partners under which amounts deposited for a period of six months are doubled and returned to the ‘Susu’ operators for onlending to the ‘Susu’ contributors at discounted rates.

This gesture went a long way to attract more ‘Susu’ operators to the bank therefore helping to

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improve the working capital levels of the bank. Ghana Commercial Bank, according to its board chairman Osei-Bonsu (2007) came up with a similar version of special loans for ‘Susu’ operators. One hundred and sixteen (77.3%) respondents mentioned the fact that their marketing officers have been storming various offices, markets and mosques, to showcase their products thereby luring customers to their fold. Bank of Ghana’s bulletin (2009)

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complained that as much as 55% of cash in circulation is not routed through the banking systems and therefore commercial banks should devise strategies for capturing every pesewa into the banking system.

It is therefore heartwarming that the kind of aggressive marketing introduced by the “invading” Nigerian banks is gradually affecting the traditional banks who now hitting the streets to buttress their liquidity levels. One hundred and ten (73.3%) also indicated that their banks have recognized the importance of Small and Medium scale Enterprises (SMEs) and are therefore creating special departments to cater for their financial needs. Banks in Ghana over the years have discriminated against the SMEs in the disbursement of loans because according to Essien (2005) most of the huge bad debts sticking in their books emanated from their association with the SME sector.

However with the recent realization that SMEs, according to Baah-Wiredu (2007) constitute over 80 percent of the private sector, the banks as confessed by Mwaneketwe (2007) have no option but to design suitable training packages and improve the level of managerial acumen of these SME operators. Mwaneketwe (2007) has stated that Barclays bank has instituted business clinics for its SMEs, where periodic workshops and seminars are held to beef-up their knowledge in basic management principles, book keeping, loan administration, risk management and related courses that would sharpen their managerial skills. Adu-Mante

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(2007) also indicated that GCB organizes regional workshops for its SME customers where consultants and some senior staff members helped to inculcate the spirit of sound financial management into these groups of customers. To Adu-Mante (2007), this enabled the bank to dole out US$27 million to the sector in 2007.

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Seventy-four (49.3%) respondent pointed out that their banks are contemplating on finding solace at the Ghana Stock Exchange to improve their capital levels. According to Yamoah (2008) the Ghana stock Exchange, like all stock Exchanges in the world is a market for longterm loans. It is a market for medium term, long term and permanent loans to the government, industry and commerce. Essentially the stock Exchange is the market for new shares. In recent times according to Bawumia (2007) a good number of commercial banks in Ghana have capitalized on the operation of the GSE to rope in more funds. Banks such as Ecobank and GCB, have gained substantial amount of money from the GSE. Other listed Banks according to Price Water House (2009) are Stanchart Bank and SG-SSB.

The question is, with the purchasing power of Ghanaians dwindling as a result of high cost of living could the stock exchange help struggling traditional banks to secure more funds towards meeting the new minimum capital of GH¢60 million? Seventy-two (48%) respondents also indicated that their banks would follow GCBs footsteps in making a right issue to existing shareholders so as to entice them to increase their equity.

4.2.3 Views on How Industry Competition Is Impacting On Cash Mobilization Effort The study wanted to examine how competition in the industry is impacting on cash drive ef-

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forts. The results have been shown in Figure 4.2

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    Figure 4.2 - Bar chart showing problems with cash mobilization   90

FrequencyPercntage

80 70

Key

88% 74.6%

68% 62%

Interestratewar

60 Extrafundtoinvestin servicedeliverysystems

50 40

Retaining for staff to containcompetition

30

more funds for corporate socialresponsibility

20 10 0

ResponseType    Source:

Field Data (2012)

It is clear from Figure 4.2 that 132 out of the 150 respondents representing 88 percent believed that competition is really creating interest rate war leading to a cut in the income from interest on loans. According to Andani (2011) banks like Barclays have dropped their base rate to 18 percent thereby forcing others to scale down their rates. Tetteh (2011) also explains that some banks have already made projections with interest rates around 23% and therefore a downward adjustment would certainly adversely affect their fortunes. Nonetheless, the Central Bank maintains that with prime rate moving down drastically to

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12.5% it behooves on all banks to cut their base rates. Governor Amissah-Arthur (2011) explains that much as the central banks has no intention of forcing banks to come down on their interest rate, market forces will eventually force down the relatively high rate being quoted by some banks.

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    The sources mentioned as heartwarming the decision by GCB and others to operate below the 20 percent base rate and noted that with time the rest “will see the light” and comply. One hundred and twelve (74.6%) respondents mentioned that owing to competition, banks have to spend good money meeting their corporate social responsibility. According to Thompson et al (2007) the essence of socially responsible business behaviour is that a company should balance strategic actions to benefit shareholders against the duty to be a good corporate citizen.

Roberts et al (2003) also note that company managers are obligated to display a social conscience in operating the business and specifically take into account how management decisions and company actions affect the well-being of employees, local communities, the environment and the society at large. Barclays bank has established a clinic for the people of James town a fishing community within the same vicinity where the bank’s headquarters is located.

Ecobank has collaborated with the Catholic Church in rehabilitating street boys and girls. Agricultural Development Bank continues to build cold stores and other recreation centres for fishmongers and farmers. Most banks have adopted hospital wards where they virtually handle everything concerning maintenance of these medical centres. According to Otabil (2008) there is the growing perception that customers tend to be more sympathetic to banks

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that take their corporate social responsibilities serious. He also linked the dominance of MTN in the mobile telecommunication industry to very generous contribution of the company towards improving water supply to sections of the Accra Metropolis. Perhaps it might be worth adding that soon after Areeba metamorphosed into MTN the new company donated a

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good sum of US$20 million towards the upgrading of the water supply facility at Weija; West of Accra. This gesture went down very well with the Accra populace.

One hundred and two (68%) respondents also indicated that owing to competition the banks have to procure more service delivery systems especially vehicles to cart cash and place personnel at customer premises at an extra overhead cost. According to Asiedu-Mante (2006) with the abolition of the secondary reserve by the bank of Ghana, adequate funds should be available for banks to provide state of the art service delivery systems as well as adequate funds to operate and compete properly. Ninety three (62%) respondents stated that as a result of competition banks ought to re-train their marketing and on the front line officers in order to effectively position their offers.

According to Daft (2006) training and development packages are aimed at changing individual behaviour and interpersonal skills towards making employees more productive. Muller (2000) also notes that training is one of the most frequently used approaches to changing people’s mind-set. He explains further that training programmes on subjects such as teamwork, diversity emotional intelligence, quality circles, communication skills or participative management. According to Kwapong (2007) following customer consistent complain about the lukewarm attitude of staff of GCB, it became necessary to secure the service of customer service specialist to man the front line and other staff of the bank to contempo-

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rary literature and skills of customer management.

4.2.4 Views on Challenges Encountered In Mobilizing More Operating Funds The study assessed specific challenges encountered by commercial banks in mobilizing funds to recapitalize their outfit and the results have been summarized in Figure 4.3

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    Figure 4.3 - Pie chart showing difficulties encountered by banks in attracting free cash

keyChallenges

22%

Centralbankrestriction

24.7%

14.6%

     38.7%

Economiccrises Activitiesofcompetitions Reductioninpurchasingpower

    

Source:

Field data (2012)

Figure 4.3 - indicates that fifty eight (38.7%) respondents hold the view that the central banks restrictions especially on disclosing the source of foreign injections is really thwarting the efforts at roping in more funds to meet the recapitalization directive. Acquah (2008) emphasizes that the Central Bank will continue to critically examine the sources of all external inflows in order to preserve the international convention on what he describes as ‘dirty money’ or money laundering. He explains further that such funds are usually directed at nefarious activities which tend to undermine the socio-economic development and peaceful co-habitation of countries. Some Arab individuals and organizations are ready to hold considerable number of shares in the Ghanaian banking industry. However the Central Bank (2010) its skepticism over

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the sources of such revenues.

Thirty-seven respondents forming 24.7 percent noted that the seemingly prevailing economic downturn is adversely affecting the savings culture of the people and therefore mobilizing funds from this area to enhance recapitalization is becoming extremely difficult. This finding has been corroborated by Aryeetey (2002) who discovered some degree of concomitance

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between the savings and economic buoyancy. He explained that where the people experience real growth of the economy, living standards tend to improve and a lot more people show positive attitude towards investment products.

Duffour (2011) laments over the fact that the private sector is not taking advantage of the various governmental interventions to help grow the economy and that, unemployment levels would be drastically reduced if the SMEs capitalized on various grants and concessionary loans to expand their operations. Perhaps if a sound system was put in place to sensitize the informal private sector about these ‘cheap’ loans, a lot more Small Enterprises could access funds to beef up their operations thereby putting more money in the pockets of the people to enhance their savings culture.

Thirty-three (22%) respondents pointed at stiff competition in the banking industry as having a negative impact on the cash mobilization prospects. According to Asiedu-Mante (2006), the advent of foreign banks especially those of Nigerian ownership into the Ghanaian banking landscape has really revolutionized banking practices so much so that the traditional banks which were ‘sleeping’ are now embarking upon aggressive marketing practices. Prior to the influx of the Nigerian banks, Atippoe (2007) says customers at Barclays bank with balances lower than GH¢100.00 were asked to either withdraw their funds or consider their accounts closed because

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the bank was an elite one.

However when the first Nigerian bank, United Bank of Africa (UBA) entered the Ghanaian banking industry in 2004 it operated a cashless account product meaning one could open an account without a dime. This attracted majority of the hitherto ‘unbanked’ segment of the population and the traditional banks including Barclays virtually started “shivering” so much

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so that Barclays which rejected customers with even GH¢99.00 balance in their account, had to accept GH¢4.00 from new customers. Competition is still very keen in the industry and the surviving banks according to PriceWaterHouse (2008) are those with innovative products and reliable service delivery systems. Twenty-two (14.6%) respondents blamed their inability to mobilize more cash on the apparent reduction in the purchasing power of the people.

4.3

Analysis of Issues Relating to the Attraction of Strategic Investors to Increase their Capital Base

The study wanted to understand which banks had invited strategic investors to help with their recapitalization endeavours. The findings have been catalogued in the figure 4.4.

Figure 4.4:

Pie chart showing banks that are planning to attract strategic investors to increase their capital base

44% 56%

Keys No Strategic Investor YesStrategicInvestor

Copyright © 2013. Diplomica Verlag. All rights reserved.

    

Source:

Field Data (2012)

Figure 4.4 shows that as expected 66 out of the 150 (44%) respondents indicated that arrangement have almost been concluded to secure some strategic investors to boost their efforts at meeting the recapitalization directive of the central bank. These respondents 71

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happened to be those from Merchant Bank Ghana, Prudential Bank and National Investment Bank. Eighty-four (66%) respondents mainly from Barclays, Ecobank and Ghana Commercial Bank indicated that they had already met the new capital requirement levels and therefore there was no immediate need for any strategic investor towards recapitalization but might be helpful with their expansion projects.

According to Asiedu-Mante (2010) given the fact that there is very little probability of banks recapitalizing through the GSE before the close of December 2012 it behooves on management of struggling banks to exercise other viable options of attracting strategic investors.

4.3.1 Views on the Kind of Investor Arrangements That Banks Are Entering Into The study wanted to know the kind of investor arrangements that the banks are planning to bring on board. The responses have been featured in table 4.6:

Table 4.6:

Frequency Distribution Table Showing the Kind of InvestorArrangements Banks Are Entering

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Response

Frequency

Percentage

Take over through acquisitions

12

18.2

Merger arrangements

20

30.3

Strategic share holdings

18

27.3

Management buy out

16

24.2

66

100

Total Source:

Field Data (2012)

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Table 4.6 indicates that 20 out of 66 (30.3%) respondents who responded that their outfit needed strategic investors are also happy about merger arrangements with the international investor group. Eighteen (27.3%) respondents all from Prudential Bank wanted some kind of arrangement where the investors will be strategic shareholders. This means the existing management structure of the bank will not be disturbed and that the investors will only pick up their dividends at the end of their financials period.

Mensah (2004) however thinks it is difficult to poach a strategic shareholder who will only be interested in his dividend without influencing the management structure of the bank. Sixteen (24.2%) respondents felt their banks would not mind entering into a management buyout kind of arrangement if only they could help them meet the central bank’s directive. Twelve (18.2%) respondents explained that they are ready for a take-over or any kind of acquisition arrangement that would be fair to both parties without retrenching any member of staff.

4.3.2 Views on how Banks plan to invest extra funds that come with Recapitalization The study wanted to understand how the banks plan to turn round the extra funds that the recapi-

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talization activity brings onboard. The responses have been featured in figure 4.5.

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    Figure 4.5

Bar-graph show views on how banks plan to invest extra funds comes

with recapitalization 60

Frequecncy percentage

53% 50

Key

40

MoreloanstoSME sector 31.8% Investmentin governmentsecurities

30 20

15.2%

Strengthtenthefinance ofassociatedcompanies

10  0

ResponseType 

Source:

Field data (2012)

Figure 4.5 depicts the fact that 35 out of 66 (53%) respondents pointed out that, they envisaged to loan more funds to the small and medium scale enterprise sectors of the economic. This strategy has been corroborate by Tetteh-Kpodo (2011) who lamented over the fact that the banks are not doing much to shore up the finances of the SME sectors who, incidentally are the “engine of growth” of the economy.

Essien (2005) also notes that until the SMEs reduce the high risk associated with lending to the sector, banks will continue to discriminate against them in the lending investment portfoli-

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os. Twenty-one (31.8%) respondent pointed out, that they will invest more of their excess funds in government securities while the remaining ten of the sixty-six (15.2%) respondents indicated that more of the excess fund will go into strengthening the finances of their associated companies.

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    4.4

Analysis of Issues Relating to Generating more Funds from Ghana Stock Exchange (GSE)

This segment examines the importance of the GSE, its products and whether it could be a force to reckon with in the recapitalization drive.

4.4.1 Views on Importance of GSE to the Banking Industry The study sought views of respondents on the role that GSE plays in facilitating banking operations. The findings have been ranked in below:

Table 4.7:

Frequency Table showing the importance of GSE to the Banking Industry Response Type

Banks could expand their capital base by selling shares on the

Frequency

Percent

(out of 150)

(%)

130

86.7

121

80.7

102

68

98

65.3

95

63.3

GSE Revenue accruing from shares issued by corporations and companies are all routed through the banks The GSE helps individuals with loose funds to invest properly and the banks act as intermediaries in these instances Government and municipal authorities sometimes sell bonds. The GSE and funds involved are often in the custody of banks

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Stockholders who wish to off load their investment in corporations handle these transactions through the SE. Source:

Field Data (2012)

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Table 4.7- shows 130 (86.7%) respondents pointing out that the Ghana Stock Exchange (GSE) offers banks the template for selling more shares to rake in more funds to expand their operations. According to Yamoah (2008), banks should put their houses in order, so as to enable them raise more money to enable them pursue their recapitalization agenda. AmissahArthur (2011) also advised struggling banks to approach the GSE for help to raise the requisite capital in order not to have their licenses revoked by the close of the December 2012 deadline.

One hundred and twenty-one (80.7%) respondents saw benefits of the GSE to banks, in that when the public subscribe for shares and make deposits, these funds remain in the custody of the banks for a relatively long period and could be very useful for the day to day operations of the banks. According to Aryeetey et al (2000) the banks consider such funds as ‘cheap money’ since they are not obliged to pay any interest on such funds. Ironically, some companies rather pay services charges to the banks for being the custodians of these funds.

One hundred and two (68%) respondents pointed out that the GSE also enables individuals with ‘loose’ funds to invest properly by accessing some products of the Exchange. Here again payment for such portfolio investments are made through the banks and the latter could take advantage of such inflows to enhance its daily operations. Ninety-eight (65.3%) respondents mentioned that the GSE has helped government and municipal authorities secure funds for public finance by

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issuing bonds to the public. The banks again act as the custodian of proceeds from the issuance of such funds.

Ninety-five (63.3%) respondents also agreed that GSE offered the opportunity for individuals and organizations who wished to off load shares to do so. The fund transfer also goes through

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the banks. From the foregoing, one cannot agree more with Ammann (2001) when he noted that globally Stock Exchanges are development partners to financial institutions especially the commercial banks.

4.4.2 GSE Products Easily Accessed by Banks The study sought to find the available products on the GSE that could help banks reach their recapitalization dreams. The results are featured in figure 4.6.

Figure 4.6:

Pie Chart showing products banks intend to access on the GSE

26.4%   

29.4%

44.2%        InitialPublicoffer(IPO)

BothIPOandRightIssue

RightIssueShareOffer



Source:

Field Data (2012)

Figure 4.6- depicts that 30 out of the 68 (44.2%) respondents who answered the question on

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products they intend to access on the GSE, hoped to combine both initial public offer (IPO) and Right Issue Offer to secure more funds to enhance their recapitalization efforts. Twenty (29.4%) respondents indicated that capitalizing on initial public offer (IPO) to shore up their prospects for meeting the December 2012 recapitalization deadline is the path they will take. Eighteen (26.4%) respondents pointed out that some modalities are already at advanced

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stages to embark on Right Issue Share Offer to motivate their shareholders to increase their equity in their banks.

4.4.3 Views on Problems with Relying on GSE to raise Funds Being cognizant of the fact that a good number of banks are yet to explore the opportunities at the Ghana Stock Exchange, the study sought to investigate why such banks seemed to be dragging their feet. Figure 4.7- shows the reason for the lukewarm attitude towards the GSE.

Figure 4.7:

Bar graph showing why banks are not enthused with going to the GSE for help

FrequencyPercentage

60 50  40  30 20

WhollyownedGovernment bankshaslittlechanceofgoing toGSE Prefers International Exchange toGSE

51.2% 30.5%

GSEistoosaturated 18.3%

10 0 ResponseType



Source:

Field Data (2012)

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Figure 4.7- shows that out of the 82 respondents whose banks are not keen on going to the GSE, forty two (51.2%) lament that the Ghana Stock Exchange seems to be saturated with players in the banking industry and therefore the public appeared bored with the numbers of floatation from banks. According to Boeh-Ocansey (2005) a larger proportion of Ghanaians are not financially sophisticated enough to patronize Stock Exchange products. Studies by 78

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Aryeetey et al (2000) confirm that Ghanaians are more comfortable with Treasury bills which have regular income than investing in shares.

Mensah (2004) also recommends that more sensitization ought to be made to create the necessary awareness within the Ghanaian populace not only on the benefits of the Ghana Stock Exchange, but also, its potential of being more rewarding than returns on Treasury bills. Twenty five (30.5%) respondents explained that their banks, specifically, National Investment Bank and Merchant Bank are either wholly own or quasi government institutions and therefore a lot more work ought to be done to gain acceptability on the GSE. Fifteen (18.3%) respondents mainly from Zenith Bank pointed out that their bank is already listed on an international exchange and therefore there was very little need to ‘play’ on the GSE.

4.4.4 Views on Whether GSE facilitates the Recapitalization Process The study accessed the views of respondents on whether the GSE could help struggling banks achieve the new minimum capital level of GH¢60 million. The findings have been catalogued in Table 4.8.

Table 4.8:

Frequency Distribution Table showing respondent’s views on the ability of using the GSE to Raise Funds

Copyright © 2013. Diplomica Verlag. All rights reserved.

Response Type

Most Ghanaians prefer treasury bills with a constant

Frequency

Percent

(Out of 150)

(%)

112

81.3

102

68

source of income to buying shares which have fluctuating levels of income Given the fact that Ecobank, GCB and other banks have

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all in the recent past picked up funds from the GSE it might not be easy going back to seek funds from Ghanaians Rising cost of living will not allow most Ghanaian the

79

52.7

76

50.7

52

34.7

49

32.7

extra funds for buying shares A few banks in Ghana are paying good dividends so this should motivate serious minded Ghanaians to buy more shares Ghanaians are investment minded and will be willing to buy shares to help improve banks’ liquidity Share certificates are accepted as collateral security and therefore Ghanaians will be willing to wield such reputable investment Source:

Field Data (2012)

Table 4.8- shows that of the 150 respondents, 122 (81.3%) are of the view that most Ghanaians were yet to assimilate the concept of holding shares as securities and rather prefer treasury bills which confer regular income to their patrons. The view therefore is that the GSE could hardly help the struggling banks to meet the new minimum capital level. One hundred and two (68%) respondents emphasized that four banks have already succeeded in

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roping in funds from the GSE within the last four years and that some kind of fatigue could be setting in for Ghanaians as far as buying bank shares are concerned. Struggling banks should therefore consider alternatives such as mergers and acquisitions as recommended by the Central Bank.

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Seventy-six (50.7%) respondents however maintained that with banks such as Stanchart and Ecobank paying good dividends, Ghanaians should be motivated to buy more shares to help struggling banks. Fifty-two (34.7%) respondents also felt Ghanaians are getting increasingly investment minded and therefore they should be able to help the banks to capitalize by buying more shares. Forty-nine (32.7%) respondents saw share certificate as a collateral security that should attract more Ghanaians to go into share business.

4.5

Analysis of Issues Relating to Reducing Cost to enhance the Recapitalization

Process Views were also sought on whether internal cost reduction strategies could help improve liquidity so as to expedite action on the recapitalization process.

4.5.1 Views on Operational Areas Where Cost could be reduced to enhance Liquidity The findings on areas where respondents felt cost could be reduced to speed up the process of re-

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capitalization have been catalogued in figure 4.8.

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Figure 4.8:

Bar Graph showing views on areas where cost can be reduced to im-

prove

FrequencyPercentage

liquidity

80  60  40 

 74.7%

80%

65.3% 48.7%    

20  0 ResponseType StaffEmolument and Allowance  Utilities and Consumables MaintenanceCost

ProcurementPractices



Source:

Field Data (2012)

Figure 4.8- shows that one hundred and twenty (80%) respondents pointed at procurement practices of the banks where reduction cost could succeed in saving adequate funds towards the recapitalization drive. Generally Imani (2011) explains that Ghana as a country loses close to three billion US dollars annually through corruption especially in procurement practices. If banks could streamline their buying procedures, a lot more could be saved to improve their liquidity status.

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One hundred and twelve (74.7%) respondents mentioned maintenance cost as another area which is susceptible to corruption and therefore the processes ought to be streamlined to cut cost. Ninety-eight (65.3%) respondents also referred to such administrative overhead cost at consumables and utilities where some good money can be saved. Mention was made of poor administration of electricity and telephone which tend to consume large budgetary

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allocations. Company policy on switching off lights and switching off computers by the close of day and many more could go a long way to cut cost in these areas.

Seventy-three (48.7%) respondents spoke of the possibility of adjusting staff emoluments and allowances downwards to beef up liquidity. Daft (2006) frowns upon downwards adjustment of staff benefits as a cost cutting strategy since this could precipitate labour unrest and its concomitant high labour turnover. Perhaps overtime allowances could be streamlined to ensure that the system was not abused.

4.5.2 Views on Functional Areas of the Bank That Can Be Outsourced Cost reduction can also be effected through outsourcing certain functional areas of the bank. The researcher therefore sought respondents’ views on areas of the bank where this can be done to improve liquidity.

Table 4.9:

Frequency Table Showing Functional Areas That Can Be Successfully Outsourced

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Response

Frequency

Percent

Human resource planning and management

27

18

Janitorial and security services

48

32

Cash lifting and counting functions of the bank

43

28.7

Training development activities of banks

32

21.3

150

100

Total Source:

Field Data (2012)

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Table 4.9 - show that forty eight (32%) respondents indicated that Janitorial and security services are areas which could successfully outsourced to cut cost. Forty-three (28.7%) respondents also mentioned cash lifting and counting services as another area where effective outsourcing could be made to increase revenue. Thirty-two (21.3%) respondents noted that training and development activities of the bank constitute one potential area where outside consultants can handle effectively to save their bank a lot of funds.

Twenty-seven (18%) respondents mentioned human resource planning and management as one unit that can safely be handled by outsiders at lesser cost. According to Boateng (2006) HR activities in most organizations are abused especially in promotional exercise and selection of staff for training. Such processes are often fought with inconsistencies, nepotism and favourtism and therefore when external consultants are put in charge, square pegs cannot end up in round holes.

4.5.3 Views on Ways of Reducing Cost between Banks to Enhance Liquidity Commercial banks trade amongst themselves and some of the cost associated with such transactions can be very colossal. The study therefore sought to examine ways by which such

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cost can be minimized. The funding has been summarized in figure 4.9.

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    Figure 4.9:

Pie chart showing how cost between banks can be reduced

Keys Propernegotiationfor overnightfacilities 23.3%   26.7%

33.3% Harmonise ATM cards to minimise costs of installing  ATMs

16.7%

Proper planning to preempt overnightborrowing Joint research to generat innovativeproducts     

Source:

Field Data (2012)

Figure 4.9- shows that 50 of the 150 respondents constituting 33.3 percent are of the view that banks could reduce cost by entering into proper negotiation with their competitors in relation to cost of overnight borrowing. According to Essien (2005) when banks realize that they are unlikely to meet customers’ withdrawals, rather than going to the Central Bank to borrow, they fall on their competitors for help. Essien (2005) explained further that such overnight borrowing could be expensive in terms of associated interest. He explained that all banks experience such difficulties and the best option is to approach a competitor rather than

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head for the Central Bank. He added that frequent visits to the Bank of Ghana could be seen by the regulator as a weakness in the banks operation and could have very far reaching consequences.

Forty (26.7%) respondents also indicated that banks should embark upon proper planning to pre-empt the need to resort to overnight borrowing. Sufian and Chong (2008) are of the 85

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opinion that with proper assets and liability management, banks should not have any problem meeting customers’ withdrawals. Thirty-five (23.3%) respondents mentioned joint research alliances between competitors helped share the cost of generating innovative products. According to Thompson et al (2007) a strategic alliance is a formal agreement between two or more separate companies in which there is strategically relevant collaboration of some sort, joint contribution of resources, shared risk, shared control and mutual dependence. Often alliances involve design collaboration, joint research to jointly develop new products. Such alliances do not only help to reduce operating cost but goes a very long way to minimize unnecessary rivalry amongst competitors.

Twenty-five (16.7%) respondents felt banks could also minimize cost by harmonizing their Automated Teller Machines (ATM) administration. They mentioned a wonderful collaboration between UT Bank and GT Bank under which the ATM systems are made compatible with the electronic cards of customers from both banks. This means the two banks will share the cost of installing the ATM device at various strategic locations besides their banks’ premises.

4.5.4 Views on How the Central Bank Could Assist the Banks in Reducing Cost Looking at the challenges most local banks are facing in recapitalizing, the study examined how the Central bank could help these banks to reduce cost, thus, improving upon their liquidity

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levels. The findings have been summarized in Figure 4.10

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Figure 4.10: Bar graph showing areas where BoG could assist banks to reduce cost in order to smoothly embark upon recapitalization. 

Keys

FrequencyPercentage

100

BoGtofinance compulsoryservice deliverysystem

90 80 70

BoG to guarantee funds solicitedbybanks

60 50 40



94.7% 84%

80%

BoGtopayforcostof cashmovement

68%

30

Central Bank reducing cashreserve

20 10

 

0 ResponseType  

Source:

Field Data (2012)

From figure 4.10- 142 out of the 150 respondents forming 94.7% stated that the Central bank could help banks reduce cash by reducing cash reserve requirement to enhance liquidity. According Asiedu-Mante (2006) the Central bank abolished the secondary cash reserve requirement which went a very long way to improve the financial position of all the banks. It might therefore not be easy asking the BoG to reduce the ‘primary’ cash reserve again. One hundred

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and twenty-six (84%) respondents pointed out that the cost of moving cash both intercity and intra-city consume a chunk of funds and therefore it will not be out of place if the Central bank subsidized such cash movement activities.

One hundred and twenty (80%) respondents also share the view that the Central bank should grant them concessionary loans to procure compulsory service delivery systems like ATMs as well as to rehabilitate their infrastructure. Adu-Mante (2007) argues that where the Central 87

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Bank influences the kind of infrastructure and equipment the banks should use, some level of uniformity will prevail and cost of maintenance especially the ATMs will be within tolerable limits. One hundred and two (68%) respondents wanted the Central bank to help those secure international funds to revamp their businesses.

4.6

Findings

Based on the information gathered from the field the following finding can be made:

4.6.1 Efforts of Meeting New Minimum Capital Requirements Banks are feverishly working around the clock to step up the operating capital level to the GH¢60 million mark. While wholly Ghanaian owned banks like GCB and Fidelity have exceeded the new minimum mark others like Prudential Bank and NIB are still struggling to make the mark.

4.6.2 Cash Mobilization Strategies of Banks Although banks are lobbying to manage international project funds, coming out with innovative products, embarking upon vigorous customer drive activities, making right issues on the GSE as part of their strategies towards mobilizing more cash to recapitalize their outfit, a good number of them especially Prudential Bank and NIB still sense their limitation in using

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such strategies to hit the new minimum operating capital level.

4.6.3 Impact of Competition on Cash Mobilization Efforts Competition is impacting negatively on the cash mobilization efforts of the banks, in that, interest rates on lending have to be cut; extra cash has to be provided to finance.

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    4.6.4 Challenges in Mobilizing More Funds to Recapitalize The Central Bank has specific rules on the kinds of funds that banks can solicit internationally to beef up their capital. Moreover, activities of competitors are adversely affecting the prospects of cash mobilization drive. Economic downturn and its concomitant effect on purchasing power of the people also disrupt the success of cash mobilization efforts.

4.6.5 The Reliability of Ghana Stock Exchange in Facilitating Recapitalization Process The increasing tendency of Ghanaians to prefer treasury bills to subscribing for shares on the GSE might inhibit plans by struggling banks to recapitalize through the Exchange. This is exacerbated by the growing fatigue amongst the investing public in bank shares especially where four banks very recently have all made IPOs and right issues on the capital market.

4.6.6 Likely Areas for Cost Reduction by the Banks Banks can streamline their operations to reduce cost particularly in areas of maintenance, procurement practices, administrative consumables and staff emoluments.

4.6.7 Strategies for Reducing Overhead Cost Overhead cost can be greatly reduced to enhance liquidity if effective measures were put in place to control the use of telecommunication facilities. Conscious efforts at switching off electrical appliance by the close of day could help reduce cost drastically. If memos were

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transmitted through soft copies rather than hard copies, a lot more cost could be cut. Helping customers to administer fill-in forms at the banking hall could reduce wastage and cut cost.

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    4.6.8 Functional Areas that can be outsourced to Cut Cost The banks could shore up their capital levels if some functional areas such as HR planning, janitorial and security service, cash lifting and counting functions as well as training and developments were outsourced.

4.6.9 Reducing Cost Associated with Relationship with Other Banks Banks can effectively reduce cost associated with their relationships: Proper negotiation of overnight facility cost. Proper planning in respect of balancing assets and liability management to minimize borrowing from other banks. Collaborative efforts in research to generate innovative products. Harmonizing ATM administration to ensure that customers of two or more banks could use an ATM facility. 4.6.10 Central Banks Assistance towards Improving Liquidity in Banks The Central bank could effectively help the commercial banks to improve their liquidity levels through activities such as: Reducing cash resource ratios. Granting long term facilities to commercial banks to procure compulsory service delivery systems.

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Absorbing cost of both intercity and intra-city bulk cash movement. Guaranteeing facilities under which commercial bank pick up international loans.

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    CHAPTER FIVE SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.0

Introduction

This concluding chapter summarizes the study, makes appropriate recommendations and draws useful conclusions.

5.1

Summary

The study has been structured into five distinct chapters; the summary therefore will follow suit.

5.1.1 Chapter One This chapter introduced the subject matter of the study by outlining the background information, statement of the problem, objectives of the study, research questions, brief research methodology, and, the scope of the study as well as the limitations of the research. In introducing the study, the research explained that although all the foreign banks had been able to meet the new recapitalization directive from the Central bank, some purely indigenous Ghanaian banks are struggling to meet the new capital adequacy level. The study therefore attempted to assess the constraints bedeviling efforts of the local banks so as to help design a

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road map for the way forward.

5.1.2 Chapter Two The second chapter reviewed the contemporary literature on what capitalization entails, the need for capitalizing Ghanaian banks and what constitute essential elements for successful capitalization of banks. It also discussed a strategic approach for reducing cost in the banking

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sector so as to shore up liquidity. The chapter discussed the capacity of the stock exchange to help generate extra funds for the banks’ operations. An assessment of the effects of sound bank capital on the behavior of the bank was made while a close look at challenges of recapitalization was also made.

5.1.3 Chapter Three The third chapter focused on the details of the research methodology. It outlined the research design, study population, sampling techniques, research instrument, data collection, pretesting, data processing and analysis as well as ethical considerations. The researcher adopted the questionnaire technique as the research instrument because all the respondents are educated officials who could effectively read and understand the dictates of the questions on the questionnaire. The questionnaires gave the respondents the requisite flexibility to cooperate fully with the study.

5.1.4 Chapter Four Chapter four presented the analyzed data with interpretations and discussed the findings. The analysis featured some demographic features of respondents as well as issues relating to the challenges of mobilizing adequate cash to recapitalize banks. Findings on issues relating to problems with generating funds from the Ghana Stock Exchange (GSE) were analyzed and thoroughly discussed. Adequate data concerning how cost can be reduced to enable banks im-

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prove on their liquidity level were also discussed.

5.1.5 Chapter Five This concluding chapter summarized the study, made recommendations and drew conclusions.

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    5.2

Conclusion

Based on the findings of the study these conclusions can be drawn:

5.2.1 Challenges confronting Ghanaian Banks in meeting the Recapitalization Order Challenges confronting Ghanaian banks in mobilizing more funds towards meeting the recapitalization order include: More investment in service delivery systems. Cost of re-training staff. More funds to implement corporate social responsibility agenda. Cuts in interest rates as a result of competition and Central bank directive. Central banks restriction on the kind of money that can be accepted as investment.

5.2.2

Challenges with Generating More Funds from the Ghana Stock Exchange to recapitalize

Ghanaians prefer investing in Treasury bills with fixed levels of income to subscribing for shares with fluctuating returns on investments; this constitutes a big set back towards efforts by the banks at employing the GSE to raise funds to meet the recapitalization deadline. Moreover the Stock Exchange is saturated with other companies which also require funding with good prospects of paying better returns on investments.

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5.2.3 Sourcing Funds from International Strategic Investors Banks with strong track records and are capable of developing convincing proposals and business plans with achievable results are securing strategic international partners to promote the recapitalization agenda.

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    5.2.4 Reducing Operating Cost to improve working Capital Banks can cut operating cost to improve the working capital by streamlining procurement practices, reviewing maintenance cost structure, controlling utilities and consumables as well as taking a second look at some of the fringe benefits approved for the staff and management members. Cost reduction can also be effected through outsourcing such functions as Human Resource Planning and Management, Janitorial and Security services, Cash lifting and Counting as well as Training and Development Activities.

5.2.5 Central Banks Role in Assisting banks to recapitalize The Central bank in 2006 abolished the second reserves requirement, and this can be followed up with a further reduction in the existing cash reserve to improve liquidity levels of the banks. Cost involved in cash movement can also be borne by the Central bank to ease financial burden on the banks.

5.2.6 Acquisitions, Mergers and International Support Observing unfolding events on the financial scene of Ghana, it is becoming increasingly clear that the best way forward is for the local banks to consider merging their operations. The stronger banks could also acquire the weaker ones as can be seen by Ecobank taking over the Trust Bank or seek international support as done by International Finance Corporation (IFC) who announced its intention (daily graphic 2, April 2012) to invest 15 million dollars in UT

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Bank to enhance its operations in the SMEs sector.

5.3

Recommendations

Based on the problems discovered in the study, the following recommendations are proposed:

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    5.3.1 Challenges with mobilizing free cash to recapitalize bank Banks, especially the local ones are experiencing great difficulty in picking up free cash to buttress their financial position. Given the fact that the Central bank statistic (2008) suggests much more money ‘floating’ outside the banking system, the temptation to recommend that banks adopt more vigorous sales promotion strategies to entice the unbanked community to route their funds through the banks. Ironically it is banks like Ecobank and GCB who seem to have no difficulty meeting the new minimum capital of GH¢60 million, who are also adopting the use of expensive gifts like dream cars to boost their sales.

5.3.2 Streamlining the stock exchange operations to enhance its effectiveness It came out unequivocally from the study that, the GSE can hardly help struggling banks to beef up their capital levels owing to seeming subscription fatigue amongst the public and rising cost of living. It is interesting to note that the Trust Bank of Gambia has been listed on the Ghana Stock Exchange to pick up funds to operate in Gambia.

It is therefore recommended that the GSE streamlines its listing procedures to enable a lot more local institutions, not only banks, to come on board. Secondly the GSE should explore the possibility of linking up with other international stock exchanges especially in the emerging economies within the Asian world such as the Hong Kong Stock Exchange. Some working relationship with the sub-regional stock exchanges in Nigeria and South Africa will

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also go a very long way to improve the prospects of the local business entities.

5.3.3 Helping banks to cut cost Banks play an indispensable role in the socio-economic development of the country and therefore they need to be helped to establish their presence in all the 138 districts of the

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country. Nevertheless building a branch bank is highly capital intensive and has the propensity of weakening the capital base of the commercial banks. It is from this background that the Central bank is being called upon to solicit some long term facility at concessionary rate from the Bretton Wood institutions especially the International Finance Corporation (IFC) by way of revolving funds, to help the commercial banks to extend their coverage across the country. Such a fund could also cater for modern services delivery systems such as ATMs.

5.3.4 Central Bank to Guarantee International Loans to help Local Banks Recapitalize Although the directive of the Central banks for all banks to recapitalize appears laudable, care should be exercised not to ‘colonialize’ the economy of Ghana. The ease with which the international banks have welcomed the idea and thrown in more funds to meet the new capital requirement presupposes that if the indigenous banks are unable to honour the recapitalization directive then the banking industry of Ghana is likely to be dominated by foreign inves-

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tors! Is that what the Central bank really want?

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    Reference Textbooks 1. Aoki, M., Hugh P., and Sheard P. (1994). The Japanese Main Bank System: Its Relevance for Developing and Transforming Economies. Oxford: Oxford University Press. 2. Aryeetey .E. (2002) “Policy on Sectoral Credit Allocation and Credit Flow to SME in West Africa (IT publication London) 3. Aryeetey, E., Harrigan, J and Nissanke, M., (2000), Economic Reforms in Ghana, Woeli Publishing Services, Accra. 4. Banks, E., (2004) Alternative Risk Transfer: Integrated Risk Management through Insurance, Reinsurance and the Capital Markets, New York: Wiley/Finance. 5. Daft, Richard (2006) New Era of Managements (Thompson Smith- western) P190194 6. Hoshi, T. and Patrick H., (2000). Innovations in Financial Markets and Institutions. Boston: Kluwer Academic Publishers 7. Rose, P. S., and Hudgins, S. C. (2005). Bank Management & Financial Service. New York: McGraw Hill. 8. Strauss, A.L and J. Corbin (2000) Basic Qualitative Research, Sage Publications:

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Newbury Park, CA 9. Tanner, A. A (1995), “Financial Systems Restructuring: An Overview of Ghana’s Experience”, The West African Banker No 5, pp5-11. 10. Thompson A. A., Strickland, A J and Gamble J. (2007) Crafting and Executing Strategy, McGraw-Hill Irvin publisher, p483-48

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11. Warwick, D.T and Lininger (1975) The Sample Survey: Theory and Practice, New York: MC 12. Zikmund, W. G and Babin, B. J (2010) Exploring Marketing Research, 10 Ed SouthWestern Cengage Learning Pp 188-186

Journals 13. Abbasoglu, O. F., Aysan, A. F., & Gunes, A. (2007). Concentration, competition, efficiency and profitability of the Turkish banking sector in the post-crisis period. Banks and Bank Systems 2(3), 106-115.

14. Acharya, V. V., Pedersen L. H., Philippon T., and Richardson M., (2009) “Regulating Systemic Risk,” Restoring Financial Stability: How to Repair a Failed System,” Wiley/Finance. 15. Acquah P. (2007) “ Expectations for the Banking Industry “ Daily Graphic Vol. 150020 of April 12 2007 p 49 16. Adu-Mante, L.(2007) ‘GCB pumps $27.9 million into SME’s”. Commerbank news vol.6 of Dec.2007 17. Akhavein, J., Berger, A. N., & Humphrey, D. B. (1997). The effects of megamergers on efficiency and prices: Evidence from a bank profit function. Review of Industrial

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Organization 12(1), 95-139. 18. Ammann, M., (2001) “Do Risk-Based Pricing and the New Basel Capital Accord Reinforce the Credit Cycle?” Financial Markets and Portfolio Management (February), 15: 1

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19. Asiedu-Mante, E. (2006) “Expand The Scope Of The Banking Sector” Daily Graphic of August 5, 2006 p 29

20. Bank of Ghana (2009) “Financial Stability Report”, Volume 7, No. 2/2009 21. Barney, J. B. (1991). "Firm resources and sustained competitive advantage." Journal of Management 17 (March): 99-120. 59 22. Benink, H.A., J. Danielsson, and A. Jonsson, (2008) “On the Role of Regulatory Bank Capital,” Financial Markets, Institutions, and Instruments (February), 17: 1, 85-96. 23. Ben-Naceur, S., & Goaied, M. (2008). The determinants of commercial bank interest margin and profitability: Evidence from Tunisia. Frontiers in Finance and Economics 5(1), 106-130. 24. Berger, A. N. (1995). The relationship between capital and earnings in banking. Journal of Money, Credit and Banking 27, 432-456. 25. Berger, A. N. (1995). The relationship between capital and earnings in banking. Journal of Money, Credit and Banking 27, 432-456. 26. Bikker, J., & Hu, H. (2002). Cyclical patterns in profits, provisioning and lending of banks and procyclicality of the new basel capital requirements. BNL Quarterly Review 221, 143-175. 27. Boeh-Ocansey, O. (2005) “PEF collaborating with relevant agencies to review Copyright © 2013. Diplomica Verlag. All rights reserved.

business Laws” Daily Graphic B/F no.208 of April 26 2005. 28. Brissimis, S. N., Athanasoglou, P. P., & Delis, M. D. (2008). Bank specific, industry specific and macroeconomic determinants of bank profitability. Journal of International Financial Markets, Institutions and Money 18(2), 121-136.

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29. Cooper, M., Jackson, W., & Patterson, G. (2003). Evidence of predictability in the cross section of bank stock returns. Journal of Banking and Finance 27, 817-850. 30. Danielsson, J., Shin H. S., and Zigrand, J.-P., (2004), “The Impact of Risk Regulation on Price Dynamics,” Journal of Banking and Finance Vol. 28 1069-1087. 31. Diamond, D.W. (2001). “Should Japanese Banks be Recapitalized?” Bank of Japan Monetary and Economic Studies 19: 1-19 32. Flamini V., McDonald, C. and Schumacher L.

(2009) “The Determinants of

Commercial Bank Profitability in Sub-Saharan Africa”, an IMF working Paper series No WP/09/15 33. Flannery, M. J., (2005) “No Pain, No Gain? Effecting Market Discipline via “Reverse Convertible Debentures” in Hal Scott, ed., Capital Adequacy beyond Basel: banking Securities and Insurance, pp. 171-196. 34. Gelb J, Betsy D. Gelb, (1999) "Predicting cooperative behavior during a retailer’s bankruptcy", Qualitative Market Research: An International Journal, Vol. 2 Iss: 1, pp.31 - 45 35. Goddard, J., Molyneux, P., & Wilson, J. (2004). Dynamic of growth and profitability in banking. Journal of Money, Credit and Banking 36, 1069-1090. 60 36. Henderson, NR (2007) “The Power of Probing” Marketing Research 19, no.4 p 38.

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37. Hofmann, B., “Procyclicality: (2009) “The Macroeconomic Impact of Risk-Based Capital Requirements,” Financial Markets and Portfolio Management, 19: 2, pp. 176197, 2005. 38. Hogarth, G., and Thomas J. (1999). “Will Bank Recapitalization Boost Domestic Demand in Japan?” Bank of England Financial Stability Review (June). 100

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    39. Kashyap A. and Scharfstein D.

(1991). “Corporate Structure, Liquidity, and

Investment: Evidence from Japanese Industrial Groups.” Quarterly Journal of Economics 106 (February): 33-60. 40. Kosmidou, K. (2008). The determinants of banks' profits in Greece during the period of EU financial integration. Managerial Finance 34(3), 146-159. 41. Kuranchie, P. A. (2012) “NIB Rediscovers position” Daily Graphic April 13, pp. 53 42. Levine, R. (1998). The legal environment, banks, and long run economic growth. Journal of Money, Credit and Banking 30, 596-613. 43. Mensah, S (2004) “A Review of SME Financing in Ghana” presented at the UNIDO Regional workshop of financing SMEs, Accra, Ghana, and March 2004. 44. Molyneux, P., & Thornton, J. (1992). “Determinants of European bank profitability: A note”. Journal of Banking and Finance 16, 1173-1178. 45. Mwanakatwe, M. (2007) “Barclays Support for SME’s” Daily Graphic vol. 150064 of June 12 2007, p 10. 46. Nakaso, H. (1999). “Recent Banking Sector Reforms in Japan.” Federal Reserve Bank of New York Economic Policy Review (July): 1-7. 47. Neely, M., & Wheelock, D. (1997). “Why does bank performance vary across states?” Federal Reserve Bank of St. Louis Review, 27-38. 48. Osafo Maafo Y. (2004). “SMEs not taking advantage of institutional interventions”

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Daily Graphic vol. 140968 of March 18, 2004. Pg 28. 49. Otabil, B. (2008) “Nigerian banks find doing business in Ghana good to resist” Daily Graphic of June 19, 50. Podoslske, H, (1998) “Money and Finance in the Macroeconomic Process” Journal of Money, Credit and Banking, May pp 181-212

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51. Rajan R. G. (2000). “A Theory of Bank Capital.” Journal of Finance 55 (December): 2431-65. 52. Rivard, R. J., & Thomas, C. R. (1997). “The effect of interstate banking on large bank holding company profitability and risk”. Journal of Economics and Business 49, 6176. 61 53. Rowley, A. (1999). “Japan’s urgent call to forgive.” Singapore: Business Times, (May 27): 20. 54. Sufian F. and Chong R.R., (2008). Determinants of bank profitability in a developing economy: empirical evidence from the Philippines. Philippines: Asian academy of management journal of accounting and finance; AAMJAF, Vol. 4, No. 2, 91-112,

55. Tanner, A. A (1995), “Financial Systems Restructuring: An Overview of Ghana’s Experience”, The West African Banker No 5, pp5-11. 56. Tourangeau, R (2004) “Survey Research and Social Change” Annual Review of Psychology, pp, 775-801 57. Winsome, S.J and Johnson (2000) “The Pros and Cons of Data Analysis Software for Qualitative Research” Journal of Nursing Scholarship 32, no.4 pp 393-397

Websites (Webology)

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58. Guy Carpenter, (2008) “The Catastrophe Bond Market at Year-End 2007,” GC Securities,.http://gcportal.guycarp.com/portal/extranet/popup/insights/reportsPDF/200 8/Cat%20Bond%202%2027.pdf;jsessionid=K3LPJTQLf0nWknTTmP2Dsmny5pW26 XBQ42sv8CCztc ywLCzdlLcK!-1561269420?vid=6

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59. Kashyap, A., Raghuram R., and Stein J., (2008) “Rethinking Capital Regulation,” presented at the Federal Reserve of Kansas City Symposium on Maintaining Stability in a Changing Financial System, Jackson Hole, Wyoming, August 21-23. http://www.kansascityfed.org/publicat/sympos/2008/KashyapRajanStein.03.12.09.pdf 60. Rochet, J. C., (2008) “Comments on the Article by A. Kashyap, R. Rajan, and J. Stein,” presented at the Federal Reserve of Kansas City Symposium on Maintaining Stability in a Changing Financial System, Jackson Hole, Wyoming, August 21-23. http://www.kansascityfed.org/publicat/sympos/2008/Rochet.03.12.09.pdf

Other Sources 61. Acquah Paul Dr. Governor Bank of Ghana, “Evaluating the Banking system in Ghana.” Keynote address at the fifth Banking Awards ceremony, Accra, May 6, 2006. Daily Graphic, Thursday, August 30, 2007 “Look Beyond Ghana” 62. Adu-Mante, L. (2007) ‘GCB pumps $27.9 million into SME’s”. Commerbank news vol.6 of Dec.2007 63. Bank of Ghana (2009) “Financial Stability Report”, Volume 7, No. 2/2009

64. Bawumia, M. (2007) “Banking in Ghana in the last 50 years - Challenges and prospects”. A key note address at the launch of Ghana Banking Awards, January.

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65. Bikker, J., & Hu, H. (2002). Cyclical patterns in profits, provisioning and lending of banks and procyclicality of the new basel capital requirements. BNL Quarterly Review 221, 143-175. 66. Bond, P. (1999) Lending with Joint Liability. Ph.D. dissertation. Chicago: University of Chicago, Department of Economics. 103

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67. Eichengreen, B., & Gibson, H.D. (2001). Greek banking at the dawn of the new millennium. CEPR Discussion Paper. 68. Flamini V., McDonald, C. and Schumacher L.

(2009) “The Determinants of

Commercial Bank Profitability in Sub-Saharan Africa”, an IMF working Paper series No WP/09/15 69. Flannery, M. J., (2005) “No Pain, No Gain? Effecting Market Discipline via “Reverse Convertible Debentures” in Hal Scott, ed., Capital Adequacy beyond Basel: banking Securities and Insurance, pp. 171-196. 70. Flannery, M. J., (2009) “Stabilizing Large Financial Institutions with Contingent Capital Certificates,” unpublished manuscript, September 9. 71. Froot, K. A., (2001) “The Market for Catastrophic Risk: A Clinical Examination,” NBER Working Paper No. 8110, February. 72. Hassan, M. K., & Bashir, A. H. M.

(2003). Determinants of Islamic banking

profitability. Paper presented at the 10th ERF Annual Conference, Morocco, 16-18 December. 73. Henderson, NR (2007) “The Power of Probing” Marketing Research 19, no.4 p 38. 74. Ito, T., and Sasaki Y. (1998). “Impacts of the Basle Capital Standard on Japanese Bank’s Behavior.” Working paper. Hitotsubashi University and Takachiho

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University, August. 75. Nakaso, H. (1999). “Recent Banking Sector Reforms in Japan.” Federal Reserve Bank of New York Economic Policy Review (July): 1-7. 76. Neely, M., & Wheelock, D. (1997). “Why does bank performance vary across states?” Federal Reserve Bank of St. Louis Review, 27-38.

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77. Shin, H.Y., (2006) Risk and Liquidity in a System Context (BIS Working Paper No.

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212, Bank for International Settlements, Basel, Switzerland, August).

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    Appendix I -Questionnaire Methodist University College Ghana Masters in Business Administration (MBA) Questionnaire (for Bankers) This questionnaire has been designed to solicit views from bank officials on the “prospects and challenges on recapitalizing commercial banks in Ghana”. Please be assured that your answers will be treated as highly confidential so please be forthright with honest answers. Kindly tick () in the boxes provided where applicable. Section A:

Personal Data

1. Gender:

Male

Female

2. Age range Years

21 - 30

31 - 40

41 - 50

51 - 60

Above 60

Tick ()

3. What is your highest academic qualification? Diploma/HND First Degree Master Degree

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Professional qualification. Please indicate ……………………………………. Others please specify…………………………………………………………… 4. Marital status Married

Single

Divorced

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Separated

    5. Which bank do you work for? ………………………………………………………… 6. How long have you been working with the bank? Years

Less than 2 years

3-5

6-8

9-11

12 and above

Please tick

Section B:

Issues Relating to Challenges of Mobilizing Adequate Cash to Recapitalize Banks

7. Kindly supply the following figures to assist in assessing your financial development towards meeting the new minimum capital requirement for commercial banks: Liquidity Item

2007

2008

2009

2010

2011

Customer’s deposits Loans from other banks Advances to customers Loan to other bank Short term investment Shareholders fund Total Assets Operating Profit

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8. How are you mobilizing more cash for the smooth operations of your bank? Marketing officers go to offices, markets, among others, a customer drive activities Design flexible package for ‘Susu’ collectors to deposit funds with banks Make right share issue offer for existing shareholders to increase their equity 107

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    Lobby to manage international concessionary rated project funds Enlist with the Ghana Stock Exchange for an Initial Public Offer (IPO) so as to rope in more funds towards recapitalizing the bank Arrange for organization to lodge their provident and other staff funds with the bank Other please specify …………………………………………………………… ………………………………………………………………………………….. 9. Is competition disrupting your cash mobilization effort? Yes

No

Somehow

10. If ‘Yes’ or ‘Somehow’ to Q.9 how is competition disrupting your cash drive efforts? Cut in interest rates which means that to be competitive we also need to reduce interest rate Provide more service delivery systems, for example, vehicles to cart cash and place personnel at customer premises at extra overhead cost Marketing officers will have to be retrained in order to effectively rival activities of competing banks on the field We have to increase our corporate social responsibility activities so as to court more “commercial” sympathy from the public Others please specify ………………………………………………………….. …………………………………………………………………………………..

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11. If ‘No’ to Q.9 why is competition not disrupting your cash mobilization effort? We have effectively segmented the market and are pleased with response from our target group of customers Our international partners readily throw in funds when necessary so competition has very little impact on our cash mobilization effort

108

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Our cash reserves are adequate enough to enable us discharge all liabilities and responsibilities effectively Others please specify …………………………………………………………... ………………………………………………………………………………….. 12. What specific challenges do you encounter mobilizing more funds to recapitalize your bank? Central Bank’s restriction to obtain certain available monies for operations Activities of competitors also limit our cash mobilization prospects Prevailing seemingly economic downturn impacts negatively on the quantum of deposits being made by category of customers The apparent reduction in purchasing power of the people also affects our cash mobilization efforts Other please specify …………………………………………………………… ………………………………………………………………………………….. Section C:

Issues Relating To Generating More Funds from the Ghana Stock Exchange

13. How important is the operations of Stock Exchanges (SE) to the development of the banking industry? Revenue accruing from shares issued by corporations and companies are all

Copyright © 2013. Diplomica Verlag. All rights reserved.

routed through the banks. Banks could also expend their capital base by selling shares on the Stock Exchange Government and municipal authorities sometimes can sell bonds through the SE to raise more funds for public finance. All these funds are deposited at the banks 109

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The SE helps individuals with loose funds to invest properly. The bank acts as intermediaries in these instances Stockholders who wish to off load their investment in corporations are helped by the SE to achieve their aim. The bank plays a useful role in this as well. Others please specify ………………………………………………………….. ………………………………………………………………………………….. 14. Has your bank been listed on the Ghana Stock Exchange (GSE)? Yes

No

15. If ‘Yes’ to Q.14 which of the following products has your bank benefited from? Initial public offer (IPO) Right Issue share offer Both IPO and Right Issue Offer Corporate Bonds Others, Please specify ………………………………………………………… …………………………………………………………………………………. 16. If ‘No’ to Q.14 why would your bank not capitalize on GSE to raise more funds to recapitalize? As a wholly owned government bank we don’t have much doing on the Stock Exchange We are listed on International Exchanges and therefore we have no business on

Copyright © 2013. Diplomica Verlag. All rights reserved.

the Ghana Stock Exchange The Ghana Stock Exchange seems to be saturated with players in the banking industry and therefore the public appears bored with floatation from banks Others please specify …………………………………………………………... …………………………………………………………………………………..

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17. Do you see the Stock Exchange as a potential source for recapitalizing banks in Ghana? Yes

No

Somehow

18. If ‘Yes’ or ‘Somehow’ to Q.17 what makes you think so? Ghanaians are investment minded and will be willing to buys shares to help improve banks liquidity Banks in Ghana are paying good dividends to shareholder and this serves as incentive for more shares to be subscribed Share certificates are accepted as collateral security and therefore Ghanaians will be willing to wield such reputable investments Other please specify …………………………………………………………… ………………………………………………………………………………….. 19. If ‘No’ to Q.17 why don’t you think the GSE could help with the recapitalization efforts of most banks? Given the fact Ecobank and GCB have all in recent past picked up funds through the SE it might not be easy going back for more funds Most Ghanaian prefer treasury bills with constant source of income to the procurement of shares which have fluctuating levels of income Rising cost of living will not allow most Ghanaians the extra fund for such investment purposes

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Other please specify …………………………………………………………… …………………………………………………………………………………..

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Section D:

Issues relating to attracting strategic international partners to facilitate Recapitalization

20. Has management contemplated on engaging a strategic partner to help honour the new capital requirement imposed by the central bank? Yes

No

In the process

21. If your answer to Q.20 is ‘Yes’ or ‘in the process’ what type of investor is it? A member of the Bretton Woods institutions A corporate finance group from Europe An Asian ‘Tiger’ finance group Others, please specify………………………………………………………… ……………………………………………………………………………….. 22. If ‘No’ to Q.20, why is management not interested in attracting any strategic partners? ………………………………………………………………………………………. ………………………………………………………………………………………. ………………………………………………………………………………………. ………………………………………………………………………………………. 23. What kind of investment arrangement is the investor bringing on board? Take over through acquisition Merger arrangement Majority

shareholdings

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Management buys out Others

please

specify…………………..……………………………………….

…………………………………………………………………………………..

112

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24. How will the management of the bank be affected by the advent of the new investor group? New board of directors will be constituted with a new chief executive. The management board of the bank will be restructured with the possibility of retrenching a good number of top executives. Not much has been discussed about the change in management structure of the bank. Others please specify…………………………………………………………… ………………………………………………………………………………….. 25. How have you planned to utilize the extra funds that suddenly come into the bank’s kitty as a result of the recapitalization directive? More loans to the SME sector Investment in government securities Strengthen the finances of associated companies Others

please

specify………………………………………………………….

…………………………………………………………………………………. Section E:

Issues Relating to Cost Reduction to Shore up Banks Liquidity

26. Which areas of your operations do you think cost can be reduced to enhance liquidity of the bank? Staff emolument / allowances Copyright © 2013. Diplomica Verlag. All rights reserved.

Utilizing administration Maintenance cost Procurement practices Other please specify …………………………………………………………… …………………………………………………………………………………. 113

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27. How do you think overhead cost can be reduced at your bank? Effective control on use of telephone facilities Ensure curtailment of electricity supply to PC and auxiliaries at the close of the day Recycling of A-4 sheets to reduce volumes procured for operations Customers to be helped in administering fill-in forms so as to minimize wastage Other please specify …………………………………………………………… …………………………………………………………………………………. 28. Which functional area of the bank can be successfully outsourced to streamline operating cost? HR resource planning and management Janitorial and securities services Cash lifting and counting functions of the bank Training and development activities of bank Others please specify ………………………………………………………… ………………………………………………………………………………… 29. How can cost be reduced with regards to the business relationship between your bank and other banks? ……………………………………………………………………….. ………………………………………………………………………………………..…

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………………………………………………………………………………………….. 30. How can the central bank help commercial banks to improve liquidity? Central bank helping to reduce cost Reduce cash reserve requirement to enhance liquidity

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Help commercial banks to finance acquisition of compulsory service delivery systems such as ATMs Absorb cost or moving cash both intercity and intra-city on behalf of commercial banks Guarantee facilities picked up from these banks from international finance organizations Other please specify …………………………………………………………… ………………………………………………………………………………… 31. If you were asked to recommend ways of recapitalizing banks in Ghana what will you say? …………………………………………………………………………………….. ………………………………………………………………………………………… ………………………………………………………………………………………… ………………………………………………………………………………………… …………………………………………………………………………………………

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Thank You.

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    APPENDIX II CALCULATION OF OPERATING CAPITAL

Ecobank Ghana 2011

2010

2009

GH¢

GH¢

GH¢

Cash & cash equivalent

232,856

144,237

104,162

Government

Securities

573,295

468,974

268,534

Loans & Adv to banks

357,553

314,235

442,806

725

1,851

2540

Loans & Adv to customers

849,893

496,043

456,159

Investment & Sec for Sales

10,872

17,360

24,363

4,240

3,959

-

Operating Assets

Trading assets

Investment in Association Total Financial Asset

2,031,434

1,446,659

1,298,564

Liabilities Bank deposits

108,185

69,921

90,127

Customer deposits

1,608,256

1,116,332

922,077

Total ‘Operating’ Liabilities

1,716,441

1,186,253

1,012,204

314,993

260,406

286,360

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Operating Capital

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    Ghana Commercial Bank (GCB) 2011

2010

2009

GH¢

GH¢

GH¢

Cash & cash equivalent

-

328,737

149,406

Government

Securities

-

452,525

106,784

Loans & Adv to banks

-

231,515

186,307

Trading assets

-

-

-

Loans & Adv to customers

-

1,003,682

1,265,517

Investment & Sec for Sales

-

10,152

10,627

Investment in Association

-

-

-

Total Financial Assets

-

2,026,611

1,718,641

Bank deposits

-

182,418

121,671

Customer deposits

-

1,575,281

1,259,470

-

1,757,699

1,381,141

-

268,912

337,500

Operating Assets

Liabilities

Total ‘Operating’

Liabilities

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Operating Capital

117

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    Merchant Bank Ghana (MBG) 2011

2010

2009

GH¢

GH¢

GH¢

Cash & cash equivalent

82,128

77,518

65,457

Government

Securities

95,933

185,090

93,487

Loans & Adv to banks

101,574

62,464

172,841

925

878

1,124

Loans & Adv to customers

214,581

227,040

336,207

Investment & Securities for Sales

231,895

220,066

-

Total Financial Assets

727,036

773,056

669,116

85,222

56,881

100,719

Customer deposits

595, 069

652,685

510,624

Total ‘Operating’ Liabilities

680,291

709,566

611,343

46,745

63,490

57,773

Operating Assets

Trading assets

Liabilities Bank deposits

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Operating Capital

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    Prudential Bank

2011

2010

2009

Operating Assets

-

GH¢

GH¢

Cash & cash equivalent

-

39,970

30,377.3

Government Securities

-

36,843

33,931.8

From other balance

-

70,231

59,493.1

Loans & Adv to banks

-

225,514.8

185,561.4

Investment in Sub

-

6,030.6

6,030.6

Other Trading Assets

-

5,457.3

9,324.5

Total Financial Asset

-

384,052.7

324,718.7

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Liabilities Customer deposits

-

339,302.5

251,276.0

Borrowings

-

18,357

45,100.4

Total ‘Operating’ Liabilities

-

357,659.5

296,376.4

Operating Capital

-

26,393.2

28,342.3

119

The Banking Sector in Ghana: Issues in relation to Current Reforms : Issues in relation to Current Reforms, Diplomica Verlag, 2013. ProQuest Ebook Central,

    National Investment Bank (NIB)

2011

2010

2009

GH¢

GH¢

GH¢

41,435

52,792

-

Government Securities

123,315

90,169

-

From other banks

154,597

112,115

-

Loans & Adv to banks

399,258

326,977

-

Investment in Sub

82,650

70,394

-

-

-

-

801,255

652,447

-

722,890

498,803

-

Borrowings

11,842

77,074

-

Int. on other liabilities

22,007

29,607

-

756,739

605,484

-

44,516

46,963

-

Operating Assets Cash & cash equivalent

Other Trading Assets Total Financial Assets

Liabilities Customer deposits

Total ‘Operating’ Liabilities

Copyright © 2013. Diplomica Verlag. All rights reserved.

Operating Capital

120

The Banking Sector in Ghana: Issues in relation to Current Reforms : Issues in relation to Current Reforms, Diplomica Verlag, 2013. ProQuest Ebook Central,

    Zenith Bank Ghana 2011

2010

2009

GH¢

GH¢

GH¢

Cash & cash equivalent

-

254,152

268,425

Government Securities

-

105,744

81,121

Loans & Adv to banks

-

6,084

2,149

Trading assets

-

269,893

187,857

Loans & Adv to customers

-

5,042

2,617

Total Financial Assets

-

640,915

539,169

Customer deposits

-

552,195

468,513

Operating Capital

-

Operating Assets

Copyright © 2013. Diplomica Verlag. All rights reserved.

Liabilities

88,720

121

The Banking Sector in Ghana: Issues in relation to Current Reforms : Issues in relation to Current Reforms, Diplomica Verlag, 2013. ProQuest Ebook Central,

70,656

Author’s biography

Copyright © 2013. Diplomica Verlag. All rights reserved.

Edmund Benjamin-Addy was born in Accra, Ghana but hails from Apam in the central region of Ghana. He recently completed his master’s degree programme in finance from the Methodist University College Ghana. This is his first script. The saying “Successful People Builds with the Bricks others Throw at Him” have been his major motivation in life. After working with the Millennium Development Authority a Ghana Programme under the Millennium Challenge Account of the United States Government as a Resettlement Assistant, he worked briefly as a Financial Analyst with Black Star Advisors and currently heads the Monitoring and Supervision Department of the Ghana Cooperative Susu Collectors Association (GCSCA). The writer’s interest in the banking sector is what motiviated him to undertake a thorough study in this area.

The Banking Sector in Ghana: Issues in relation to Current Reforms : Issues in relation to Current Reforms, Diplomica Verlag, 2013. ProQuest Ebook Central,

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