Unibank vs UT Bank and Capital Bank: Spot the Difference?

The Bank of Ghana (BOG) on March 20, 2018, appointed KPMG as “official administrator” of Unibank Ghana Ltd (“Unibank”). According to the BOG, the appointment of the official administrator is to save Unibank from imminent collapse and prevent losses to depositors and creditors.

This is the second time the BOG has intervened in the operations of a bank in less than twelve months. This decision by the BOG is different from an earlier decision it took on August 14, 2017, in relation to UT Bank Ltd (“UT”) and Capital Bank Ltd (“Capital”). In the case of UT and Capital, the BOG approved a “Purchase and Assumption Agreement” that saw the transfer of all deposits and selected assets of UT and Capital to GCB Bank Ltd. The remaining assets and liabilities of Capital and UT bank are in the process of being sold and settled through a “receivership” process under the supervision of Messrs Vish Ashiagbor and Eric Nana Nipah of PricewaterhouseCoopers (PwC).

From what we know so far, Unibank’s current predicament can be traced to a BOG notice dated September 11, 2017. The regulator, in the notice, announced a new minimum capital requirement for Banks from GH¢120 million to GH¢400 million. All banks, according to the notice, are required to meet the new minimum capital requirements by December 31, 2018. Existing banks would be required to meet the required minimum capital through “fresh capital injection; capitalization of income surplus; and a combination of fresh capital injection and capitalization of income surplus”. The notice further states that banks will not be allowed to capitalize revaluation reserves, reserves on financial instruments through other comprehensive income, statutory reserves, credit risk reserves and unaudited profit.

The increase in the minimum capital requirement is expected to lead to consolidation and mergers in the banking sector. It is also expected to cause Ghana to have fewer banks by end of 2018 as compared to the thirty-five banks licensed by the BOG as at August 2017.

According to the BOG, its heightened supervision in recent times is necessary for dealing with the underlying problems in the sector and providing a footing to “position the financial sector as a major growth driver to support the country’s inclusive broad-based and inclusive growth agenda”.

Administration v Receivership

Administration and Receivership are two of the many ways by which the BOG is empowered to intervene in the operations of a bank. Administration refers to the period in which the affairs, business, and property of a company are managed by a qualified insolvency practitioner known as an administrator. The administrator is required to perform his functions in the interest of the company’s creditors, as a whole. The objective of an administration is to (a) rescue the bank as a going concern (the primary purpose); (b) to achieve a better result for the company’s creditors than would be achieved if the company were wound up; and (c) to realize property to make a distribution to one or more secured or preferential creditors[1].

On the other hand, a receiver is a person appointed under the terms of a debenture, or by a court order or statute to realize assets and apply the proceeds for the benefit of those entitled.

 Official Administration and Receivership under Act 930

The regulation of banks is primarily hinged on the protection of deposits or investments of its customers. Under Section 29 of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930) the BOG requires banks to maintain a Capital Adequacy Ratio (CAR) of at least ten percent. CAR is a measure of a bank’s total commitments to its depositors in relation to its risk exposures i.e. debts. Meeting the CAR is important to protect the interest of depositors in the event of insolvency. In addition to the CAR, the BOG in accordance with Section 36 of Act 930 may prescribe “one or more liquidity requirements for banks”. A breach of these provisions may result in various penalties for the banks and or its directors.

The appointment of an official administrator pursuant to Section 107 of Act 930 is premised on the fact that a bank, among other things, has contravened provisions of Act 930 in relation to its CAR, its unimpaired paid-up capital has fallen below fifty percent or has failed to cooperate with the BOG and its supervisory officials in relation to the inspection of the bank’s books. It is also possible for the directors and shareholders of the bank to request the appointment of an official administrator by the passing of a resolution. One would realise that some of these grounds were prominent in the statement issued by the BOG in relation to Unibank.

However, under Section 123 of Act 930 where a bank is insolvent or is likely to become insolvent within the next sixty days the BOG is required to revoke the bank’s license and appoint a receiver. This was the situation in relation to UT and Capital.

It is, therefore, safe to say that Unibank is not insolvent or will not become insolvent in the next sixty days. The decision by BOG to revoke the licence of a bank is one that is carefully considered in the interest of depositors and the whole financial sector because the collapse of a bank has dire consequences for the financial sector and the economy of the country.

Before the BOG exercises its powers under Section 107 or Section 123, it would have asked the bank involved to take remedial measures or corrective actions in order to streamline its operations. Some of these include appointment of an advisor[2]; imposition of administrative penalties[3]; submission of  a capital restoration plan acceptable to the BOG[4]; prohibition of persons from exercising voting rights attached to shares of the bank[5]; prohibition of the bank from awarding bonuses or increments in salary and other benefits to directors and key management personnel[6]; and the entering into agreement with the directors to rectify the undercapitalisation of the bank within ninety days and to the restoration of the capital adequacy within a period specified by the BOG[7].

The scope of KPMG’s Powers

With the appointment of KPMG as official administrator, all functions and responsibilities of shareholders, directors and management vest in KPMG. KPMG will, for the next six months, manage and operate Unibank in accordance with directives from the BOG. The period for official administration cannot go beyond a year[8]. Thus, KPMG will manage the affairs of Unibank for six months, but the BOG may renew their mandate for two consecutive periods of three months each[9]. The BOG can also remove KPMG during the period of administration and replace it with another official administrator[10].

KPMG will also be required to secure the properties, assets and records of Unibank. Hence, KPMG may change the locks of the offices of Unibank; change passwords to computers; issue new type of entrance pass to the premises of the bank to employees; and grant access to other facilities of Unibank to a limited number of employees[11].

Secondly, KPMG is required to submit an inventory of the assets and liabilities of Unibank to the BOG within the next thirty days. This is important because one of the reasons given by the BOG for appointing KPMG as official administrator is that Unibank refused to cooperate with the BOG in the performance of the latter’s supervisory responsibilities which included “deliberately concealing some liabilities from its balance sheet…”. KPMG will also be required to submit a report on the “financial condition and future prospects of the bank” within ninety days[12].

Third, KPMG will assume certain key powers of directors. KPMG may with the approval of BOG remove any or all the directors and key management of the Unibank and appoint persons to replace them. This power overrides the power of shareholders to remove directors under the Companies’ Act, 1963 (Act 179). KPMG will be required to immediately suspend dividends and any payments to directors except payments for salaries or services provided to the bank[13].

Under Act 179 and unless otherwise authorised by the regulations of a company, the directors of a company cannot without the approval of shareholders issue new or unissued shares, other than treasury shares unless existing shareholders have been given the opportunity to exercise their pre-emption rights. However, under Act 930, KPMG with the approval of the BOG and for purpose of increasing the capital of the bank issue new shares to existing shareholders[14] and new shareholders[15].

It will be recalled that Unibank was in the news recently. On March 7, 2018, Unibank issued a statement clarifying news reports that it had taken over the Agriculture Development Bank (ADB). According to the statement, Unibank entered into an arrangement with Belstar Capital Limited (Belstar) led consortium for the raising of GH¢600 million in capital which will result in Belstar acquiring a stake in Unibank. Belstar under a share subscription agreement pledged its shares in ADB to Unibank. The BOG pursuant to Act 930 stated that the transaction was void because the parties did not seek prior approval from the BOG.

The Belstar transaction will definitely be affected by the appointment of KPMG. Although Act 930 provides that a contract between a bank and a third party shall not be terminated by the appointment of the official administrator, KPMG has the power under Section 117 to carry out a merger of Unibank and other bank(s), transfer in whole or in part of the assets and liabilities of Unibank or undertake other restructuring arrangements. It will be instructive to see what KPMG will do in respect of Unibank’s transaction with Belstar.

Conclusion & Way Forward

The BOG in its March 20, 2018, press release[16] stated that as at 2016 when it conducted an Asset Quality Review (AQR), nine banks were identified as undercapitalised. In the last seven months, the BOG has taken measures against UT Bank, Capital Bank and Unibank. It remains to be publicly known what the BOG is doing in respect of the remaining six banks or what sanctions have been imposed on them.

The BOG’s press release highlights as many as ten infractions committed by Unibank which necessitated the appointment of an official administrator. These infractions have sanctions attached to them under Act 930. With the status of six banks still unknown, it will be helpful if the BOG periodically informs the general public on penalties imposed on banks who violate Act 930. This will make the financial sector more transparent and correct a lot of rumour associated with information in the financial sector. It will also ensure that customers know the standing of their banks with the regulator and allow customers to choose compliant banks based on informed decisions.

[1] Oxford Dictionary of Law (Eight edition)

[2] Section 101, Act 930

[3] Section 102(1)(f), Act 930

[4] Section 105(1)(b), Act 930

[5] Section 103(1)(g), Act 930

[6] Section 105(2)(c), Act 930

[7] Section 106(1)(b) Act 930

[8] Section 107(3), Act 930

[9] ibid

[10] Section 107(5), Act 930

[11] Section 113, Act 930

[12] Section 114(2)

[13] Section 110, Act 930

[14] Section 115(1)

[15] Section 116(1)

[16] State of the Financial Sector in Ghana, March 20, 2018.