The Bank of Ghana (BoG) revoked the licenses of twenty-three (23) insolvent savings and loans companies and finance house companies on August 16, 2019.
These actions were in accordance with Section 123 (1) of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930), which mandates the BoG to revoke the license of a bank or specialised deposit-taking institution (SDI) when it is determined to be insolvent. Additionally, the BoG appointed a Receiver for the specified institutions as stipulated by section 123 (2) of Act 930.
The BoG stated that the revocation of these licenses was necessary due to the insolvency of the institutions, despite a reasonable period of engagement with the hope of recapitalisation by their shareholders to restore solvency. The BoG provided specific reasons for the revocation of each institution's license. Below are the reasons for the revocation of the license of GN Savings and Loans Company.
GN Savings and Loans Ltd. (Statement of August 16, 2019)
Originally incorporated as First National Savings and Loans (FNSL) Company Limited, GN Savings and Loans Company Limited was licensed as a Savings and Loans Company on May 8, 2006. On September 4, 2014, it was issued a universal banking license by the Bank of Ghana and renamed GN Bank Limited.
However, on January 4, 2019, the Bank of Ghana approved a request to reclassify GN Bank from a universal bank to a Savings and Loans company because it failed to meet the new required minimum paid-up capital of GH¢ 400 million by December 31, 2018. The reclassification aimed to enable the institution to downsize its operations and inject additional capital to address severe liquidity challenges. The Bank of Ghana also appointed an Advisor to assist GN in this reclassification process.
Despite these efforts, the institution could not resolve its liquidity crisis and failed to meet most of the conditions imposed by the Bank of Ghana following its reclassification. Since the reclassification, the financial condition of the institution has worsened, exhibiting both a negative capital adequacy ratio and a negative net worth.
The Bank of Ghana concluded that GN was insolvent under Section 123 (4) of the Banks and SDIs Act, 2016 (Act 930), due to its breach of key prudential regulatory requirements. GN’s Capital Adequacy Ratio (CAR) was -61%, significantly below the minimum required 13%. The institution also faced a severe liquidity crisis, with numerous complaints from customers unable to access their deposits for several months. Additionally, GN consistently failed to meet the minimum cash reserve requirement of 10% of its total deposits since the end of the first quarter of 2019.
GN’s shareholders were unable to restore the bank to the required regulatory capital and liquidity levels despite repeated assurances of incoming capital from foreign investors. GN claimed the government owed it GH¢942.98 million, including GH¢102.73 million in Interim Payment Certificates (IPCs).
However, the Bank of Ghana’s assessment revealed that only GH¢30.33 million in IPCs had been confirmed by the Ministry of Finance as of August 6, 2019, owed to contractors potentially indebted to GN affiliates. Even considering the confirmed IPCs, GN’s capital deficit remained at -GH¢683.66 million.
GN’s insolvency was primarily due to overdrafts and other facilities extended to related companies within the Groupe Ndoum network, violating prudential norms.
Notably, GN Bank placed GH¢761.55 million with its sister companies, Ghana Growth Fund (Gold Coast Advisors) and Gold Coast Fund Management Limited (now Blackshield Capital Management), both licensed by the Securities and Exchange Commission.
These funds were used to pay customers with matured investments and to fund contractors who claimed to have worked on government projects.
The IPCs claimed by GN did not represent transactions directly involving GN, but rather those entered into by Ghana Growth Fund or Gold Coast Fund Management using funds from GN.
The failure of these related parties to repay GN contributed to its capital deficit, leading to its insolvency and severe liquidity challenges.
In addition to GN’s insolvency and liquidity challenges, the Bank of Ghana identified several key regulatory violations:
- The institution’s adjusted net worth was negative GH¢30.70 million as of the end of May 2019, indicating impaired paid-up capital in violation of Section 28(1) of Act 930.
- GN's adjusted capital adequacy ratio was -61.20% as of the end of May 2019, in violation of Section 29(2) of Act 930.
- The institution's exposure to its related party consistently exceeded the regulatory limit of 25% of net own funds (NOF), contravening Section 64(2) of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930). Most of these exposures were payments made by the bank on behalf of affiliate companies.
- The structure of GN’s balance sheet indicated that the bank mobilized deposits for its related companies.
The failure of these related companies to meet their obligations to GN led to severe liquidity challenges and contributed to GN’s insolvency, as all related party exposures were non-performing.
The institution's high non-performing loans (NPLs) were primarily due to these related party exposures, which were never repaid, jeopardizing customer deposits.
- A Bank of Ghana investigation revealed that a substantial amount of depositors' funds (USD 62,255,516.93, GBP 718,528.59, and EUR 4,200) held with GN had been transferred to International Business Solutions (another company owned by Groupe Ndoum, based in the USA) without supporting documentation.
This breached Section 19 of the Foreign Exchange Act 2006, Act 723, Section IV of Bank of Ghana Notice No. BG/GOV/SEC/2007/4, and subsequent Bank of Ghana notices issued in August 2014 prohibiting such practices.
The company had yet to publish its 2018 audited accounts, in violation of Section 90 (2) of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930).
Additionally, the company failed to maintain accounting records that accurately and reliably reflected its transactions, and therefore, did not present a true and fair view of its operations.
- GN had suspended operations in seventy (70) of its branches, including the Head Office branch at Asylum Down and the Castle Road branch, and temporarily suspended its entire management team without the approval of the Bank of Ghana.
This was in violation of Section 25 (2) of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930), and was mainly due to its insolvency and liquidity challenges.
