UT and Capital Bank takeover: A few clarifications for stakeholders

capital bank

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.

GCB set to acquire UT bank and Capital bank

GCB bank

The Bank of Ghana (BoG) has given GCB Bank Ltd the green light to acquire two local banks UT and Capital bank.

A statement from the central bank and copied to Citi Business News said, ‘The Bank of Ghana has approved a Purchase and Assumption transaction with GCB Bank Ltd that transfers all deposits and selected assets of UT Bank Ltd and Capital Bank Ltd to GCB Bank Ltd’.

According to the central bank, it has also ‘revoked the Licences of UT Bank Ltd and Capital Bank Ltd. This action has become necessary due to severe impairment of their capital’.

The latest development is part of moves by government through the Bank of Ghana (BoG) to restructure the banking industry.

Citi Business News has gathered the remaining assets and liabilities of the two banks will be realised and settled respectively through a receivership process to be undertaken by Messers Vish Ashiagbor and Eric Nana Nipah of PricewaterhouseCoopers (PwC).

According to the central bank the main offices and branches of UT Bank and Capital Bank will be under the control of GCB bank and will be opened at 1pm today for normal business transactions.

The takeover of two banks at the same time will be the first and biggest in the history of the banking industry in Ghana.
The move is to rescue the two from further challenges as both balance sheets are currently in the red.

GCB was selected amongst 3 others on the basis of purchase price, cost of funding, branches to be retained, staff to be employed and impact on the acquiring bank’s capital adequacy ratio.

Matters Arising

Customers funds & debts
Citi Business News has learnt deposits of customers of the two banks will be protected by government as the sale is finallized.
While customers who have failed to fulfill their loan payments obligations will be highly pursued.

Staff layoffs

Top level management of the two banks including the MD’s will be loose their jobs following the development.
Its unclear the fate of the other workers of the two banks, numbering close to 2,000 in total, but Citi Business News has learnt negotiations are in place to protect those who want to still work for the distressed banks.
Two top level management staff of GCB; Sam Sarpong for UT and Socrates Afram for Capital, will step in as acting MD’s in the interim.

UT Bank’s woes

UT bank’s current challenges are linked to its high non performing loans portfolio, which has greatly affected the bank’s financial performance.

The inability of the company to disclose its financials also led to a seizure of its operations temporarily by the Ghana Stock Exchange in January 2017.

UT Bank Limited formerly known as Best Financial Services, later UT Financial Limited was incorporated on April 18, 1996 under the Companies Code, 1963 (ACT 179) as a private limited liability company.

On February 19, 1997, the Bank of Ghana formally granted the company a license to operate as a non-bank financial institution and a certificate to commence business on April 24, 1997.

UT Bank was founded by Prince Kofi Amoabeng and Joseph Nsonamoah on April 18, 1996 and is headquartered at Airport, in Accra, Ghana.
The company currently employs 710 persons.

As at Monday morning, the shares of UT Bank were trading at 6 pesewas.

Capital Bank

Capital bank gained a license to become a bank in August 2013.

The company had transformed from a savings and loans entity; First Capital Plus Limited since 2009.

Even though it has been fairly new in the banking industry, the managers of Capital bank have always maintained that the bank is adequately capitalised to meet the its operations at a time that reports were rife of a possible rise in the minimum capital requirements of banks.

Capital bank is headquartered at Spintex, Accra.

Its key founders are; Ato Essien, Dr Otabil as well as Rev Fritz Gerald Odonkor.

 

Credit: citibusinessnews