The Royal Bank (TRB) has revealed it is well positioned to meet the Bank of Ghana’s planned new minimum capital requirement.

The bank has indicated plans to explore options such as shareholder and/or new investor financing for the recapitalization bid.

According to management, the bank’s financial position has improved significantly with a positive outlook especially after exceeding the 2017 half year target.

The bank in the period under review demonstrated resilience in a challenging macroeconomic environment which impacted negatively on the SME sector, its core client base.

The issues came to light during an engagement between management and Business Editors.

2017 Half-year Financial Performance and Outlook

TRB estimated to make a loss of GHS 38 million by half year due to its rising bad loans. It, however, posted a profit of GHS2.6 million after recovering part of the bad loans and increasing its demand deposits by 52%.

This compares with a loss of GHS38 million at the end of the 2016 - largely due to impairment charges of GHS 68 million recorded that year.

The bank also successfully grew its interest income by 18% year on year - largely attributed to an increase in loan and advances.

Growth in non-funded income also remained strong, rising by 20% year on year on the back of increased trade transactions and expansion of the forex product offering.

TRB’s exposures to hard-hit sectors of the economy such as agriculture however adversely affected its asset quality and resulted in a rise in Non-Performing Loans (NPL’s).

The Managing Director, Osei Asafo-Adjei who expressed pleasant surprise at the sharp turn of events this year added the bank will be in a much better position if some contractors who have executed government contracts were paid.

The management he disclosed has adopted a three-pronged approach to turn around the fortunes of the bank; focusing on recoveries, improving on asset quality and increasing operational efficiency and human capital.

“We have set up a special department to recover our Non-Performing Loan portfolio, while we review and improve our credit policies to ensure our loan assets are of the best quality. Our strategy to improve efficiency is built on improving revenue through income diversification and reducing our cost of funds.

"In this regard, we will continue to grow our non-funded income by cementing the gains achieved in expanding our trade finance portfolio and increasing income from transactional banking obtained through use of our e-banking platforms and other innovations,” he said.

Recapitalization

The Bank of Ghana (BoG) has hinted of plans to announce the new capital requirement for banks by September 2017.  Banks would reportedly be required to recapitalize up to about GHS260 million.

Mr. Asafo Adjei hailed the recapitalization saying a well-capitalized banking sector provides a strong back borne to the economy.

He, however, believes banks should be made to recapitalize based on their respective focus area s of operations.

Such a risk-based approach he believes would be a prudent decision for not only banks but the economy at large.

He explained if all banks recapitalize to the same levels, many may end up overcapitalized - a phenomenon that may only compound the challenge of high level of bad-loans in the banking sector.

“Banks that may not be interested in big ticket transactions may only end up with excess capital and because they do not work their capital adequately their Return on Equity may be so low, they may even collapse as a result.

A similar situation happened in Nigeria between 2006 and 2010 when the Non-Performing Loans went up because they were overcapitalized and so did reckless lending - the shareholders were expecting returns and so they were forced to lend.

Notwithstanding, he emphasized TRB will be in a position to recapitalize once BoG sets new limits for capitalization.

He noted, the bank is financially sound and no where near distress since it is even currently lending on the interbank market – after resolving all capital adequacy issues with the regulator.

Base Rate

Mr Asafo-Adjei said the bank was working hard to reduce its base rate to below 30%.

He explained that the base rate calculation includes a number of parameters but relies mainly on the bank’s nature and cost of deposits, which in their case is skewed towards more expensive deposits.

He, however, stressed the bank is committed to putting in place measures to attract cheaper deposits towards reducing its base rate before the end of the year.

Government’s Treasury Single Account (TSA)

Mr Asafo-Adjei said, government’s plans to implement the TSA is a good initiative but impressed on government, the need to consider a phased transition in order not to cause any systematic failures of the bank that have huge government deposits.

The TSA is an initiative by government to migrate the accounts of all public funds at commercial banks to a single account at the Bank of Ghana.

The Finance Minister, Ken Ofori Atta announced during the presentation of the mid-year review of the 2017 budget government had advanced moves to complete the process by September.

He added that some State Owned Enterprises (SOEs) which operate as commercial entities should be allowed to maintain their deposits with commercial banks.

He urged government to take all these issues into consideration before fully implementing the initiative.