The 5 reasons BoG collapsed Premium Bank

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The Bank of Ghana on Friday collapsed Premium Bank Limited as part of its clean-up exercise of the country’s banking sector and handed its liabilities and selected assets to the Consolidated Bank

Announcing the revocation of the Bank’s licence, BoG governor Dr. Ernest Addison said the local bank among other things, was found to be insolvent as of 30th November 2018 with a capital adequacy ratio of negative 125.26 per cent.

“If we were very fair, we would have shut down Premium Bank in August 2018,” Dr Addison said but said merger processes started at the time. However, he said, “the merger fell through”.

But what were all the grounds based on which the Bank of Ghana resolved to collapse the Premium Bank?

Here are the reasons given by BoG

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Premium Bank Limited (“Premium”) was licensed by the Bank of Ghana as a universal bank on 3rd May 2016. Following recent investigations into the affairs of the bank, the Bank of Ghana has revoked the licence of Premium with effect from the date of this Notice, pursuant to section 123 of the Banks and Specialised-Deposit-Taking Institutions Act, 2016 (Act 930) on the basis that it is technically insolvent.

Specifically:

1.The bank had continuously breached the Capital Adequacy Ratio (CAR) requirement since December 2017. All efforts to get the bank to correct its capital deficiency position proved futile. The situation further deteriorated resulting in the bank reporting a CAR of negative 125.26% with a capital deficit of GH¢1.15 billion as at end November 2018. The bank’s reported net-worth as at end-November 2018 was negative GH¢528.33 million, implying the bank is insolvent.

2. The bank’s liquidity and solvency challenges prompted the Bank of Ghana to undertake investigations into how the bank was capitalised. The investigation has revealed that the bank obtained its banking licence under false pretences through the use of suspicious and non-existent capital, which has resulted in a situation where its reported capital is inaccessible to them for their operations. Details of the capital verification exercise revealed the following:

Of the GH¢90 million introduced by the Vanguard Group Limited, GH¢30 million was borrowed from Royal Bank and GH¢45 million borrowed Capital Bank. These were lodged at Premium Bank’s account with Stanbic Bank Ghana Limited on February 19, 2016 and February 27, 2016 respectively.

Premium Bank subsequently placed GH¢30 million and GH¢45 million with Royal Bank and Capital Bank respectively as investments, although it original intent was to pay-off the funds borrowed. This implied these investments were fictitious, hence the bank’s inability to access the funds to meet its operational needs.

The remaining balance of GH¢15 million was transferred from Premium Bank’s account (then City Investments Company Limited) with Stanbic Bank to purchase a 182 Day Treasury Bills at the Universal Merchant Bank on February 22, 2016 and subsequently introduced as capital.

The Bank of Ghana on June 8, 2017, requested the shareholders of the bank to inject capital to replace their statutory reserve fund which was wrongly capitalised as part of the requirement for licencing the bank. To meet the requirement, the bank transferred funds totalling GH¢6 million to CDH Savings and Loans on July 19, 2017 and subsequently moved the funds to the bank’s account with Bank of Ghana through its Stanbic Bank account on July 20, 2017.

On the basis of the above, Vanguard Group Limited did not introduce any capital into the business. The total impaired paid-up capital therefore amounted to GH¢96 million. 3. The bank has persistently breached the cash reserve requirement (CRR) of 10% (CRR at December 19, 2018 was 0.01%) since April 11, 2018 and is also unable to honour customer withdrawals.

4. The bank is exposed to its related parties to the tune of GH¢444.38 million as at July 2018 totalling [37.2% of the bank’s loan book as of November 2018]. The said amount was more than the bank’s net own funds thereby breaching the regulatory limit of 10%. The bank has not been able to recover these funds. Outstanding loans to related parties were wrongly classified by the bank as “investments” for reasons which remain unclear.

5. The prudential returns submitted to the Bank of Ghana were inaccurate as exposures to related parties were misreported as investments with non-bank financial institutions thereby breaching Section 93 of Act 930. In July 2018, the bank’s total investments with Non-Bank Financial Institutions (NBFIs) reported amounted to GH¢1.08 billion. The bank’s inability to access these funds at a period in which it was faced with serious liquidity challenges indicated that those investments were either impaired or fictitious. An investigation that sought to review the quality of the bank’s investments revealed that an “investments” totalling GH¢444.38 million were loans granted to related parties and were fictitiously booked as investments with non-bank financial institutions.

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