The real facts about Capital Bank and BOG

Thepublisheronline is learning with exclusive reports that Capital Bank received a total of GHc620m in Liquidity Support from the Bank of Ghana (BOG) and not GHc610m as has been reported in the media.

With exclusive information from some close sources, we learnt that the facility came in three tranches – first GHc150m (June 2015), then GHc300m (September 2015) and finally GHc170m (November 2016).

In honour of its obligation, Capital Bank paid back a total of GHc255m to BOG (GHc10m was made as principal repayment while a further GHc245m was in regular repayments of about GHc12m a month).

The total amount of GHc255m paid back to BOG is the equivalent of 40% of the entire liquidity support. Capital Bank continued to meet its scheduled monthly repayments till the bank was taken over.

An amount of GHc130m was placed through All-Time Capital. Out of that, GHc65m was returned to Capital Bank. GHc65m ended up in shares of Sovereign Bank which were later surrendered back to the BOG.

An amount of GHc27.5m earmarked as Business Promotion was called into question. Repayment of that has already begun.

The remaining amount of GHc207.5m was used for routine banking operations throughout the period of the Liquidity Support. This amount formed part of the assets of Capital Bank that passed on to GCB Bank after the take over.

Essence of Liquidity Support 

Liquidity support to universal banks has become a common word after the ownership change in seven(7) universal banks. The term actually means borrowing from the Central Bank and the purpose of such borrowing is to provide liquidity to banks to meet withdrawal by depositors and general financial intermediation.

This borrowing called liquidity support attracts very high rates normally at the policy rate to universal banks. It is structured for repayments every three months which generate interest income for the BoG. It is therefore very misleading to portray liquidity support as if it is free money to universal banks.

Liquidity Support is a facility extended by BOG to help banks with liquidity challenges to meet their obligations. It is part of the routine functions of the Central Bank as a lender of last resort. The facility when approved is held in the account of the bank at the Central Bank.

Dwindling confidence

Public confidence in the banking sector has been shaken following the collapse of a total of seven banks – two last year and five this year — as part of firm steps by BoG Governor, Dr Ernest Addison, to keep the sector sane.

Last week, the licenses of five universal banks, Royal Bank, Construction Bank, Sovereign Bank, Unibank and BEIGE Bank, were revoked. According to the central bank, the action became inevitable due to the inability of some of the banks to meet existing minimum capital requirement.

It has also emerged that, apart from similar liquidity challenges, shareholders and directors of the two banks that collapsed last year – UT Bank and Capital Bank – engaged in “willful deceit.”

A 2014 Bank of Ghana (BoG) Examination and Inspection Report by Boulders and Advisors Limited found that there were rife instances of inter-group lending between the two banks prior to the revocation of the operating licences.

In the UT Bank and Capital Bank cases too, a review of loans granted to individuals and companies related to the banks and loans granted to companies connected to them by ownership and directorship also found severe breaches of BoG regulations.

“The initial transactions imply willful deceit at the conversion stage from a saving and loan to a full tier 1 banking license. At this stage, the shareholders appear to ‘re-engineer capital amounting to GH¢56 million through a suspect placement to local financial institutions.

“On March 30, 2016, the CEO of the Capital Bank wrote to the Head of Banking Supervision requesting that a non-existent investment of ¢482.4 million, which included the ¢56 million, should be converted into five-year debt,” the BoG-sanctioned report recounted.

Capital Bank’s CEO signature allegedly forged to divert funds –  Earlier Report

There may be an instance of fraud in the suspected misuse of liquidity support given Capital Bank by the Bank of Ghana (BoG), according to an investigative report sighted by Citi News.

The report noted that the then-Capital Bank CEO, Rev. Fitzgerald Odonkor may have had his signature forged in the authorization of specific deals related to the GHc 610 million liquidity support to the doomed bank.

The management of the Bank, with the approval of the Board Chair, diverted some of the BoG support or other uses.Some of that money was presented as capital to set up another collapsed bank, Sovereign Bank.

CONCLUSION:

The entire Liquidity Support of GHc620m given to Capital Bank by the BOG was fully accounted for. It is important to note that the Boulders Report is not new. As with all audit reports this has to be interrogated.

EOCO begun a thorough investigation early this year that involved all relevant stakeholders. It is expected that the outcomes of any rigorous investigation will affirm this position or be very close to it.