The Ghana Amalgamated Trust (GAT) saved 17,400 jobs and protected the local interest in the banking sector, Finance Minister Ken Ofori-Atta told Parliament on Wednesday, 13 November 2019 when he presented the 2020 budget.
GAT Plc, he explained, was set up in December 2018 as “an urgent” policy response to help support five local banks: Agricultural Development Bank (ADB), OmniBSIC, Prudential Bank, Universal Merchant Bank and National Investment Bank (NIB), “as they were unable to raise equity to meet Bank of Ghana’s new mandatory minimum capital requirement (MCR) of GHS400 million by 31 December 2018”.
The new MCR was the main tool used in cleaning up the banking sector. At the end of the 31 December 2018 deadline, nine local banks went under.
According to Mr Ofori-Atta, the revocation of the licences of the nine “insolvent banks” by the central bank “had a contagious effect on the remaining indigenous banks, making it hard for them to raise additional capital”.
“To ensure that indigenous sponsorship in the banking industry is protected, and over 5,400 directs jobs and 12,000 indirect jobs are kept, the government set up GAT and announced a major intervention to provide a sovereign guarantee of up to GHS2 billion to GAT as a backstop to encourage investors to support our local banks”, Mr Ofori-Atta reported to the legislature, adding: “The government successfully got the approval from Parliament to issue a Sovereign Guarantee for GAT to enable it to issue bonds and invest equity in the participating banks”.
The process, Mr Ofori-Atta said, however, was “affected by a legal suit challenging the debt instrument to be issued by GAT for equity investment in the participating banks”.
In response to that legal hurdle, he said “the legal advisors, Bank of Ghana, Securities and Exchange Commission, and the NPRA advised” that to “enable a successful capitalisation of the banks" in order "to meet the social objectives of the government”, there be: “A “replacement of the original bond framework for GAT with a preference share framework for investors; an initial bridge capitalisation of GHS800 million by the government to enable GAT invest in the first four banks (ADB, OmniBSIC, PBL & UMB); and a subsequent raising of an amount of up to GHS800 million from investors backed by a Put Call Option Agreement (PCOA) from the government to enable GAT proceed with the original structure as planned but via preference shares”.
Accordingly, Mr Ofori-Atta said, "Parliament is, therefore, requested to approve the GHS800 million initial capitalisation of GAT for its investment in the four participating banks, under the new structure and the PCOA. The PCOA will replace the Sovereign Guarantee that was previously approved for the banks".
As far as the fifth bank is concerned, the minister said the government decided "to deal with NIB separately from the other four participating banks because of its unique challenge and the fact that it was 100%-owned by the state".
He said: "Over the past months, the government has worked to strengthen the management, ensure regulatory compliance and beef up the financial reporting framework of the bank to enable it participate more effectively under the GAT programme”, adding: “The bank also took steps to engage new auditors, and make current their financial statements”.
Additionally, he noted that “to address severe liquidity challenges, the government, in October 2019, entered into a swap arrangement with NIB with respect to its Nestle shares, giving NIB GHS500 million of new liquidity for the Nestle shares. The final assessment of the bank, however, showed a much wider capital shortfall of GHS2.2bn as of the end of 2018, which it will need to raise to enable it to meet the new Bank of Ghana minimum capital requirement”.
According to him, NIB, under the GAT initiative, “has also developed a new strategy that will transform it into a specialised bank”, revealing: “Going forward, NIB shall focus on promoting industrialisation by deploying the right products and services to finance Industry across the country and in line with national development priorities”.
“In this regard, Parliament is requested to approve a GHS2.2 billion Put Call Option Agreement (PCOA) from the government to GAT to enable it to raise the required funding for NIB via preference shares. This will replace the government guarantee to GAT that was previously approved”, Mr Ofori-Atta noted.