The takeover of UT and Capital Bank has resulted in many raised questions by various stakeholders. On 14th August 2017, the Bank of Ghana revoked the licence of both UT Bank and Capital Bank Ltd. This followed a takeover of the two banks by GCB Bank Ltd. While related information continue to unfold, below is a summary of the few clarifications gathered so far.
Why the takeover
Both UT and Capital Banks had been declared insolvent by the Bank of Ghana (BOG). An institution is considered insolvent if its liabilities exceed its assets. In order to protect the banking system, in particular customers, the BOG decided to cancel their licenses. In accordance with the Banks and Specialised Deposit–Taking Institutions Act, 2016 (Act 930), the BOG was further mandated to possess and resolve the failing banks (UT and Capital Banks). There are many ways to resolve a failing bank in the banking industry. A common among them is the purchase and assumption (P&A) transaction used by the BOG.
With the purchase and assumption transaction, a healthy bank is appointed to take over the running of the unhealthy bank. In this case, the BOG settled on GCB bank to take over UT and Capital bank.
P&A transaction vs. stocks (shares) transaction
Purchase and assumption transaction differ from stocks transaction in the following ways. In purchase and assumption transaction, the buyer (in this case GCB bank) specifies which assets and liabilities it is willing to acquire, while leaving other liabilities behind. On the other hand, a stock purchase requires the buyer to purchase the company’s stocks which may come with unforeseen liabilities. GCB Bank therefore took over all deposits, selected assets and liabilities of the two banks. Liabilities that were not assumed by GCB Bank would be settled by the receiver.
The role of the receiver
The Bank of Ghana appointed PricewaterhouseCoopers (PWC) as the receiver to manage assets that were not taken over by GCB Bank. As a receiver, PWC would liquidate such assets and work with stakeholders to recover them. In other words, the role of PWC is to distribute all proceeds from liquidated assets to stakeholders such as creditors and shareholders after determining the validity of their claims. Distribution of proceeds would however be done according to the priority of claims which is in line with Banks and SDIs Act, 2016 (Act 930).
The fate of existing customers
According to the BOG, all depositors of UT and Capital Bank will have access to the full amount of their deposits. In addition, they will be able to access their accounts and continue banking transactions with GCB Bank Ltd. Customers of the two banks will henceforth become GCB Bank customers. They may continue banking at the old Capital Bank and UT Bank branch locations (which are now part of GCB Bank branches).
Fate of employees
Workers of UT and Capital Bank are to be put on probation for 6 months while the full transition of their companies into GCB Bank Ltd is completed. Completion of the transition is expected to take approximately six months. Following the transition, some workers are expected to be retained while others will be shown the exit. It is understood that senior level management of both banks, in particular those found guilty of causing the collapse of the two banks, will be the hardest hit.
Fate of shareholders
Shareholders of UT Bank Ltd. are required to patiently wait as the relevant transaction partners in the takeover process determine their fate. According to the Managing Director of the Ghana Stock Exchange (GSE), Mr. Kofi Yamoah, UT Bank shareholders may have to wait a little longer until their benefits or losses are determined. He explained further that this would depend on the available funds and direction from the receiver, PriceWaterHouse Coopers (PwC).
The GSE boss however clarified that the takeover of the assets of UT Bank does not necessarily translate into a shareholders swap.
“This is not a transaction in shares so if you are a shareholder in UT, you do not necessarily translate into a shareholder of GCB. GCB has not bought the shares of UT Bank; they have taken over certain liabilities and assets of UT Bank.”
Meanwhile the Bank of Ghana has indicated that the shareholders of Capital Bank will not be compensated.
Mr. Raymond Amanfu, the Head of Banking Supervision of the Bank of Ghana, added that discussions with the Ghana Stock Exchange in the coming days will determine the way forward for shareholders who bought shares of UT Bank from the stock market.