Unibank mishap: was BoG reckless in it decision?

Adnan Adams Mohammed

The recent happenings within the financial sector of the economy, which specifically have to do with commercial banks’ balance sheet clean up, attempt restructuring and the minimum capital requirement, have exposed a number critical issues which are threats and challenges to the survival of a healthy economy.

The banking sector plays a key role in the development of the economy.

Unibank, a wholly indigenous bank, has been one of the affected entities of the restructuring attempts by the Bank of Ghana.

Until recently few weeks ago when it was officially announced that its license has been revoked and it had been merged with other four indigenous bank to form the Consolidated Bank Ghana, as a state owned bank, management of the bank was at the beginning of the year handed to KPMG after the central bank identified a looming threat in its operations.

This step by the BoG raised heated controversies. While other financial analysts and economists commended the BoG for proactiveness and exercising authority others condemned the BoG for allegedly witch-hunting the majority shareholder of the bank Dr Kwabena Duffuor. They explained that, the liquidity crisis of Unibank was largely as a result of government’s inability to pay loans it owed the contractor customers of Unibank, and so the same government should not punish the bank for the state’s own failings.

Dr Eric Oduro Osae, a legal consultant and the Dean of Studies and Research at the Institute of Local Government Studies (ILGS), says the Bank of Ghana (BoG) may have been misled by the report submitted by KPMG to liquidate uniBank after declaring it insolvent.

He explained that, the six months administrative role assumed by KPMG at uniBank was to conduct a financial review, unlike an audit which is holistic and comprehensive.

Governor of the BoG, Dr. Ernest Addison, on the day of announcing the consolidation said uniBank Ghana Limited was being liquidated based on the findings of the financial review by its administrators, KPMG.

However, portions of the report issued by KPMG to the BoG disclosed that they did not get access to all the information needed and the BoG should consider the outcome of the report with cautiousness.

“As stated in our engagement letter unless otherwise stated in our report, we have not sought to verify information contained herein or performed procedures necessary to enable us to express an audit opinion on any of the financial or nonfinancial information contained in this report,” KPMG said.

Based on these statements, Dr Oduro Osae indicated that “anybody who wants to rely on that conclusion would have to go and do a further test and validate the areas KPMG could not validate before relying on the conclusion” due to the disclaimer issued by KPMG.

“BoG should have verified the unverifiable and invalidated areas that KPMG could not do and add to the conclusion before they proceed because if I were the lawyer for the bank, (uniBank), I would have punched holes in the KPMG report because if you don’t have every information, you don’t draw conclusions since if you draw conclusions and advise and on the basis of that the BoG takes decision and liquidates me, I will protest,” he added.

Meanwhile, Dr Oduro Osae has also alleged there might be something the BoG has refused to reveal to Ghanaians but believes they would be compelled to spell out because of Dr Duffuor’s writ in the High Court. 

Spokesperson for the shareholders of uniBank, Sammy Gyamfi, had earlier reported that government owes uniBank GHC868,973,599 as at May 31, 2018, per a letter issued by KPMG to BoG on June 22, 2018.

Based on the supposed amount government owes uniBank, Dr. Oduro Osae asked, “if indeed government owes uniBank and if that amount owed by the government is paid, would they have an improved capital adequacy ratio that would allow the bank to continue operating as a liquid bank? Have the shareholders in uniBank indicated clearly that they are ready to pump more money into the bank?” he quizzed further.

The governance expert has also reprimanded the supervisory and regulatory department of the BoG for sleeping on their job to allow the collapse to occur.

The KPMG report titled; ‘Financial Condition and Future Prospects of uniBank (Ghana) Limited – Updated,’ proposed six broad options that could be used to handle the bank to prevent its challenges from spilling over into the entire financial sector.

While three of the proposed options were on how to rehabilitate the bank, the remaining three were on how to entirely liquidate the bank, using cost-efficient and non-complex but viable methods.

Although the August 1 dissolution of uniBank through receivership, with newly established Consolidated Bank Ghana Limited, is not exactly similar to any one of the proposed methods, a careful study of the fine details of that transaction vis-à-vis the options proposed shows that it was a fusion of four of the options that the official liquidator suggested to the central bank.

Except the firm’s options one and two, which proposed a recapitalisation by existing shareholders or a third party investor, the remaining four proposals bordered on a liquidation and/or nationalisation of the bank and a subsequent transfer of selected assets and liabilities to another bank under a purchase and assumption agreement.

Moreover, the report noted that, as of May 2018, UniBank was bedevilled with a myriad of challenges, resulting from a combination of poor corporate governance practices, high cost-income ratio and a deteriorating loan book, which altogether weakened it.

It said the bank had a capital deficit of GH¢7.4 billion compared to a regulatory requirement of GH¢400 million as minimum capital; its liabilities had exceeded assets by 248 percent; and liquid assets represented just two per cent prior to the dissolution.

The report said with a cost-to-income ratio of 70 percent, UniBank’s operational expenses were higher than the industry average of 40 percent.

It added that, 70 percent of the bank’s gross loans and advances and other assets, translating into GH¢5.6 billion, were granted to related parties – companies and individuals associated with the bank.

Some of the related parties that benefited from loans and advances included LHS Ghana (GH¢199m), Cassel Energy (GH¢188m), uniPrecision Printing (GH¢188m) and EIB Network (GH¢43m).

Again, KPMG in the report disclosed that, shareholders of defunct UniBank advanced loans amounting to GHC3.7 billion excluding interest to be paid to themselves, while, in total, the related parties of the bank and its shareholders owed GHS5.6 billion minus interest.

According to the report, the shareholders proposed to repay the amounts owed by “related entities” to restore the local bank to solvency.

As part of plans to repay the GHC3.7 billion loan advanced to them and the GHC5.6 billion owed by the related parties, the shareholders proposed the following:

– Injection of GH¢1 billion not later than mid-July 2018

– Injection of GH¢1 billion by end of September 2018

– Assignment of the holding company’s (HODA) assets amounting to GH¢4.1 billion to the Bank.

This means an amount of GHC6.1 billion in total, would have been injected into the bank had the plan been followed.

KPMG said in the report that: “The nature of the shareholders’ proposal in response to Official Administrator’s demand notice for payment of GH¢5.6 billion (excluding interests) owed by related parties” would have been in “cash, buildings and others”, even though it admitted that: “The deliverability, credibility and achievability of shareholders’ proposal has not been tested”.

Some Ghanaians have questioned, how would the Shareholders’ loan repayment proposal have impacted capital and liquidity?

But, according KPMG, UniBank would have had capital deficit of GHC2.9 billion in the best case scenario, adding that: “With the combined impact of all interim payment certificates being paid by government, the capital deficit of the bank” would have improved “t

o GH¢2.2 billion in the best case scenario”.

It said liquidity of the bank would have improved in the short-term with the cash injection of GHS2 billion by September 2018, albeit medium-term liquidity challenges would have remained.

The report also said as of 31 May 2018, the liabilities of the bank exceeded assets by 284%, with capital deficit being GHS7.1 billion based on Return on Risk Weighted Assets (RWAs) which was -514%.

It said there was “significant deterioration in asset quality” of uniBank.

The report noted that “deficiencies in internal governance and bank-wide arrangements undermined the viability” of uniBank.

It said uniBank’s earning capacity continued to “deteriorate due to low returns on RWAs and a significant operating cost burden”.

As of the period under review, uniBank’s “cost-income ratio was -113%”.

The bank’s liquid assets, as of the time, according to KPMG, represent 2% of total liabilities.

Apparently, shareholders of defunct UniBank have cited KPMG for allegedly engaging in a conflict of interest arrangement with the banking regulator, Bank of Ghana (BoG).

In a statement issued on Monday, August 20, 2018, the Shareholders state: “The recent appointment of KPMG as the Receiver in respect of some assets of uniBank and four other banks shows KPMG seeking to benefit from the report that it provided to the Bank of Ghana through a further paid engagement, a clear conflict of interest situation which does not put KPMG in a good light.”

In the first public statement from Unibank since the revocation of the licence, the shareholders of UniBank disparaged the BoG for failing to provide them a copy of a report purporting to be authored by the international audit firm, KPMG, on the Financial Condition and Future Prospects of UniBank Ghana although the same document has found its way to the media.

They Shareholders allege that although they requested for a copy of the report, the BoG denied flatly them a copy of the document.

“No reason was assigned for the refusal to provide the report which the Shareholders had requested in a letter dated the 3rd of August 2018,” the Shareholders stated.

The Shareholders say, “It is unacceptable for the Bank of Ghana and KPMG to deny Shareholders access to the report, even as material in the report is being widely disseminated to discredit UniBank and instigate public contempt and opprobrium against UniBank. No opportunity has been provided to the Shareholders of UniBank to respond to any purported findings of KPMG and yet they are being tried by the court of public opinion without the full facts of the case.”

Shareholders of UniBank have cast doubt on the authenticity of the report, explaining that subsequent appointment of KPMG as the receiver of uniBank alongside four other banks amounted to conflict of interest.

The bank’s shareholder, Dr Kwabena Duffuor, is therefore in court to challenge the revocation of the bank’s licence.

A suit filed together with Integrated Properties Limited of Top Base in Gbawe, is seeking an injunction to restrain the Central Bank from “expropriating uniBank by its purported vesting of good assets and liabilities of uniBank in Consolidated Bank Ghana Limited and the revocation of the licence of uniBank.”

Other reliefs sought by Dr Duffuor include a declaration that the “good assets and liabilities of uniBank, including deposits of depositors, cannot be lawfully vested in Consolidated Bank Ghana Limited.

He is also seeking a declaration that the licence purportedly granted to the Consolidated Bank Ghana Limited was not granted in accordance with Act 930 and therefore is “null and void.”

The plaintiff is also praying for an order of mandatory injunction requiring the BoG to restore uniBank to private management and shareholding and any other reliefs, which the court may deem fit or just.