On August 16, 2019, the Bank of Ghana (BoG) revoked the licences of 23 failed savings and loans and financial institutions.
These measures were implemented pursuant to Article 123(1) of the Banks and Specialized Deposit-Taking Institutions Act of 2016 (Act 930), which requires the DG to revoke the license of a bank or specialized deposit-taking institution (SDI) if the DG determines that the institution is insolvent. The DG also appointed receivers for the designated institutions pursuant to Article 123(2) of Act 930.
The Bank of Ghana explained that it had been negotiating with the banks in the hope that a recapitalisation by shareholders would restore the institutions’ solvency, but that after a reasonable period of time the institutions had remained insolvent, making it necessary to revoke the banks’ licences. The Bank gave reasons for revoking the licences of each of the listed institutions. The following are the reasons for revoking the licence of GN Savings and Loans Limited:
GN SAVINGS AND LOANS LTD. (Statement dated 16 August 2019) GN Savings and Loans Company Limited was originally incorporated as First National Savings and Loans (FNSL) Company Limited and licensed as a savings and loan company on 8 May 2006. It was subsequently issued with a general-purpose banking licence by the Bank of Ghana on 4 September 2014 and renamed GN Bank Limited.
On January 4, 2019, the Bank of Ghana approved GN Bank’s request to reclassify it from a universal bank to a savings and loans company following its failure to meet a new minimum paid-in capital requirement of 400 million Ghana cedis by December 31, 2018. The reclassification was intended, among other things, to enable the bank to wind down its operations and inject additional capital to resolve the serious liquidity problems it faces. The Bank of Ghana subsequently appointed advisors to GN to assist in the reclassification process.
Despite this, the institution has not been able to resolve its liquidity crisis or meet most of the conditions imposed on it by the Bank of Ghana after it was reclassified as a savings and loan company. The institution’s financial position has also deteriorated since the reclassification, with both its capital adequacy ratio and net worth becoming negative.
The Bank of Ghana concluded that GN had breached key prudential regulatory requirements and was insolvent under section 123(4) of the Banks and SDIs Act, 2016 (Act No. 930). Its Capital Adequacy Ratio (CAR) was -61%, violating the minimum requirement of 13%. It was also facing a severe liquidity crisis, with numerous complaints to the Bank of Ghana’s Financial Stability Authority from disgruntled customers who had been unable to access their deposits with the bank for several months. In addition, it had not consistently met the minimum cash reserve requirement of 10% of total deposits since the end of the first quarter of 2019.
GN shareholders have failed to restore the bank to the required regulatory capital and liquidity levels, despite long-standing promises that new capital is expected from foreign investors. GN has indicated that it is owed a total of GH¢942.98 million from the government, of which GH¢102.73 million are Interim Payment Certificates (IPCs), but according to a Bank of Ghana assessment, the total IPCs identified by the Ministry of Finance as at 6 August 2019 were only owed to contractors who may in turn be owed to GN affiliates. Even taking into account the total outstanding IPCs of GH¢30.33 million, GN’s capital shortfall – GH¢683.66 million – remains unresolved, according to a Bank of Ghana supervisory assessment.
GN’s insolvency problems were mainly attributable to overdrafts and other loans it provided to related parties, other companies within the Group Ndumu business network, in circumstances that breached relevant prudential standards. Of particular interest are funds totalling 761.55 million Ghana cedis that the then GN Bank had deposited with its sister companies, Ghana Growth Fund (Gold Coast Advisors) and Gold Coast Fund Management Limited (now Blackshield Capital Management), both of which were licensed by the Securities and Exchange Commission. Some of these funds were used by the two related parties to make payments to clients whose investments matured, but some were also used to fund contractors for road works and other works that they claimed were engaged in government projects. It is important to note that the IPCs claimed by GN are not supported by any transactions entered into directly between GN and these contractors, or by the government and its agencies. These reflect transactions entered into by the Ghana Growth Fund or Gold Coast Fund Management with these contractors, using funds received from GN under circumstances that breached prudential standards. The failure of the two related parties to repay these funds to GN affected GN’s capital position and ultimately led to its insolvency and serious liquidity problems.
In addition to GN’s insolvency and liquidity problems, the Bank of Ghana found other significant regulatory violations, including:
* As at the end of May 2019, the adjusted net assets were negative GH¢30.7 million, which represents impairment of paid-up capital in violation of section 28(1) of the ‘930 Act.
* The adjusted capital adequacy ratio as of the end of May 2019 was minus 61.20%, which is in violation of Article 29(2) of the 930 Act.
* Contrary to section 64(2) of the Banks and Specialised Deposit-taking Institutions Act 2016 (Act No. 930), the institution’s exposure to its associated companies consistently exceeded the regulatory limit of 25% of its NOF. Exposures to other associated companies were primarily payments made by the bank on behalf of those associated companies.
* The structure of GN’s balance sheet clearly indicated that the bank had mobilised deposits on behalf of its associated companies. The inability of these associated companies to meet their obligations towards GN created severe liquidity problems and contributed to its insolvency as all related party exposures were non-performing. The financial institution’s high non-performing loans (NPLs) were mainly attributable to these related party exposures, which were never paid, putting customer deposits at risk.
* Investigations conducted by the Bank of Ghana on GN revealed that a substantial amount of depositors’ funds deposited with GN (US$62,255,516.93, GBP718,528.59 and EUR4,200) was transferred to International Business Solutions (another company owned by Groupe Nduom and based in the United States) without any documentation to support such transfers, in violation of Section 19 of the Foreign Exchange Act, 2006, Section IV of Act 723, Bank of Ghana Notice No. BG/GOV/SEC/2007/4 and a subsequent notice issued in August 2014 by the Bank of Ghana prohibiting such conduct.
* The company had not yet published its audited financial statements for the financial year 2018, contrary to section 90(2) of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act No. 930). Furthermore, the company had not kept accounting records in a manner that presented an accurate and reliable record of the company’s transactions and therefore did not give a true and fair view of its business.
*GN has suspended operations at 70 branches, including its head office branch at Asylum Down and its Castle Road branch, mainly as a result of insolvency and liquidity issues and has temporarily suspended its entire management team without the approval of the Bank of Ghana contrary to section 25(2) of the Banks and Specialised Deposit-taking Institutions Act, 2016 (Act 930).