The Bank of Ghana (BOG) has justified its decision to revoke the license of GN Bank in 2019 insisting that the action was warranted due to significant regulatory breaches.
According to the Central Bank, GN Bank’s operational stability was put at risk due to its noncompliance with crucial financial legislation and banking standards. In other words, the Bank of Ghana is hinting that it is unable to grant GN Bank’s licence back as requested by the bank’s management. In August 2019, the Central Bank released a statement outlining the grounds behind the revocation, citing GN Bank’s failure to meet requirements related to capital adequacy, liquidity, governance, and risk management.
Due to GN Bank’s persistent failure to maintain the required minimum capital, doubts were raised regarding the bank’s capacity to cover losses and safeguard deposits. Additionally, it had trouble managing its liquidity, which limited its ability to satisfy consumer withdrawal requests. Operational inefficiencies and increased risk exposure were also caused by flaws in GN Bank’s governance structure and risk management procedures. For instance, “GN Bank suspended operations in seventy (70) of its branches including the Head office branch at Asylum Down and Castle Road branch, and temporarily suspended its entire management team without the approval of the Bank of Ghana contrary to section 25 (2) of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930), mainly as a result of its insolvency and liquidity challenges.”
In order to preserve the financial system and protect depositors, BOG consequently revoked the bank’s licence.
Read the full statement below: Licence revocation of GN Savings and Loans Limited
The Bank of Ghana (BoG) on August 16, 2019 revoked the licences of twenty-three (23) insolvent savings and loans companies and finance house companies. These actions were taken pursuant to Section 123 (1) of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930), which requires the BoG to revoke the licence of a Bank or Specialised Deposit-Taking Institution (SDI) where the BoG determines that the institution is insolvent. The BoG also appointed a Receiver for the specified institutions in line with section 123 (2) of Act 930.
The Bank of Ghana explained that the revocation of the licences of the institutions had become necessary because they were insolvent even after a reasonable period within which it had engaged with them in the hope that they would be recapitalised by their shareholders to return them to solvency. The BoG gave reasons for the revocation of the licence of each of the institutions mentioned on the list. Below are the reasons for the revocation of the licence of GN Savings and Loans Company.
GN SAVINGS AND LOANS LTD. (Statement of August 16, 2019)
GN Savings and Loans Company Limited was originally incorporated as First National Savings and Loans (FNSL) Company Limited and licensed as a Savings and Loans Company on 8th May 2006. It was subsequently issued with a universal banking license by the Bank of Ghana on 4th September 2014 and was renamed GN Bank Limited.
On 4th January 2019, the Bank of Ghana approved a request to reclassify GN Bank from a universal bank to a Savings and Loans company following its inability to meet new required minimum paid-up capital of GH¢ 400 million by 31st December 2018. The reclassification was to among other things enable the institution to downsize its operations and also inject additional capital to resolve the acute liquidity challenges it was confronted with. The Bank of Ghana subsequently appointed an Advisor to GN to assist in the reclassification process.
In spite of the above, the institution has been unable to resolve its liquidity crisis and has also not been able to meet the majority of the conditions the Bank of Ghana imposed on the institution following its reclassification as a savings and loans company. The financial condition of the institution has also deteriorated since the reclassification with both negative capital adequacy ratio and negative net worth.
The Bank of Ghana has reached the conclusion that GN is currently insolvent under section 123 (4) of the Banks and SDIs Act, 2016 (Act 930), being in breach of its key prudential regulatory requirements. Its Capital Adequacy Ratio (CAR) is currently -61%, in breach of the minimum required of 13%.
It is also facing a severe liquidity crisis with numerous complaints received by the Financial Stability Department of the Bank of Ghana from aggrieved customers who have been unable to access their deposits with the institution for the last several months. What is more, it has consistently failed to meet the minimum cash reserve requirement of 10% of its total deposits, since the end of the first quarter of 2019.
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