Re-Capitalisation Grips Financial Markets

Ghana's financial market is undergoing some dramatic capital increases following the country’s entry into the league of oil producers and the attainment of a lower middle income status. This has pushed regulators of the financial sector to compel industry players to up their capital base to conform to Ghana’s desired status as the financial hub of the sub region. But just when the insurance companies had come out of a bout of recapitalisation, some local banks are trotting to the wire while the brokerage firms have just been hit with a recapitalisation drive. The directive by the Ghana Stock Exchange (GSE) for all the 23 licensed investment banks or brokerage firms to raise their capital base from the current GH¢100,000 to a million Ghana Cedis by 2013 has attracted mixed and swift reactions. The National Insurance Commission (NIC) too had based on a 2006 legislation, directed every life insurance company in Ghana and every general insurance to have a minimum of US$1 million in core capital, a stipulation which all the 42 licenced insurance companies in Ghana had complied with. The NIC had earlier raised the minimum capital for general insurance firms that wish to engage in underwriting policies in the oil and gas industry to recapitalise further to a minimum of US$5 million. The banking sector too is going through some transformation in phases, which the Bank of Ghana hopes all banks especially the local ones to recaptalise to the tune of GH¢60 million by the end of 2012. In all these cases the players in the markets had not taken lightly to these new rates of re-capitalisation. However, officials of the GSE say the re-capitalisation of the brokerage firms is not reversible. The General Manager of the Ghana Stock Exchange, Mrs Elizabeth Mate-Kole told the Graphic Business in an interview that the re-capitalisation of licensed investment banks was meant to make the brokerage firms stronger and be able to take on big businesses as the economy get set to thread on wheels of oil. “Yes, we are in discussions with the Securities and Exchange Commission for the brokerage firms to increase their capital base from GH¢100,000 to one million by December 2013”, she confirmed. But the directive is yet to be endorsed by the Securities and Exchange Commission (SEC), which is the regulator of the industry. Director-General of the Securities and Exchange Commission Mr Adu Anane Antwi says the regulator require more information from the GSE before approving the capital raise. “We will for instance want to know from the Ghana Stock Exchange whether they have consulted widely from the market and industry stakeholders before approval”, Mr Anane Antwi said. Head of the Research Division of Databank, Nii Ampa-Sowa is hopeful that a higher capitalisation will bring greater success on the GSE. “This will enable us do a proprietary trading,” he said. This means that brokerage firms will be able to buy stocks to keep in their books. But a senior broker at FirstBanc Financial Services, brokerage and investment firm in Accra, Mr Edem Akpenyo, however disagrees. He suggests that the increase in the stated capital should be a gradual process. According to Mr Akpenyo, going slow and soft should have been the best approach. “It should from the current GH¢ 100, 000 to say, GH¢300,000 or GH¢500,000 and not higher lump sum at a go”, he said. He cautioned that the GSE should not adopt a one size fits all policy towards the brokerage firms adding that the timeline is “too short” but conceded that the increase in the stated capital will bring a lot of activities on the Ghana Stock Exchange. For the banking sector, the on-going recapitalisation exercise were set out in two phases, which aimed to dramatically improve the core capital of the industry from a previous minimum per bank of just GH¢10 million to GH¢60 million (US$40 million). The first phase required that all majority locally-owned banks achieve a minimum core capital of GH¢25 million (US$16.6 million) by the end of 2010 and that all majority foreign-owned banks raise theirs to GH¢60 million (US$40 million) by that time. However, the other 10 foreign-controlled banks and the 14 majority Ghanaian-owned ones have all met their respective stipulated new capital targets. December, this year, comes the hard part when more than 12 Ghanaian-controlled banks will have to raise their own capital base to GH¢60 million, to complete the second phase of the recapitalisation exercise and bring them at par with their foreign counterparts. The National Insurance Commission insisted that any general insurance firm that wishes to engage in underwriting policies in the oil and gas industry, had to recapitalise further to a minimum of US$5 million in core capital by 2010. While this means that the new minimum capital is not altogether compulsory – any general insurer could choose not to recapitalise, and not underwrite oil and gas industry risks, but none of them were willing to let the obvious opportunities in that newly emergent industry pass them by. Indeed, it is instructive that all of Ghana’s general insurers have signed up to be part of the newly formed consortium to underwrite oil and gas sector risk, which tend to be so big that Ghana’s insurers must necessarily pool their resources together to handle them. Already, under the consortium, all of Ghana’s general insurers have jointly underwritten the insurance of the Floating Production and Storage (FPSO Kwame Nkrumah), which was acquired for commercial production of oil from the Jubilee oilfield off Cape Three Points in the Western Region, which has an insured value of close to US$900 million.