Following GCB Bank PLC’s announcement that it cannot proceed with its approved dividend payment, an expert is revealing that the issues raise serious questions of corporate governance and rattle investor sentiments.
A notice by GCB Bank announced to shareholders that the Central Bank had cited it for regulatory breaches and hence cannot grant approval for dividends to be paid for last year, despite the approval by the shareholders at GCB’s Annual General Meeting in May this year.
The BoG’s decision, GCB says, is linked to a regulatory issue over the reclassification of restructured cocoa bills into bonds, which has put the bank in temporary breach of the single obligor limit. This is a key that caps exposure to a single borrower.
While GCB insists this is a compliance matter and not a sign of financial strain, the news lands at a sensitive time for Ghana’s financial sector. The banking industry is still adjusting to the aftereffects of the Domestic Debt Exchange Programme (DDEP), which changed how many institutions account for government-related debt instruments.
The Rule
Banking and financial consultant, Dr. Richmond Atuahene, explains in an interview with The High Street Journal that the Single Obligor Limit rule can be found in Act 930 of the Banks and Specialised Deposit-Taking Institutions Act 2016.
Per the law, it refers to the maximum amount of credit exposure a bank or specialized deposit-taking institution can have to a single customer or obligor. According to the Act, banks are not allowed to exceed a certain percentage of their net own funds to a single obligor, an individual or a company. This is to limit the risk of exposure to a single customer.
Some key aspects of the single obligor limit include
– Purpose: To reduce systemic risk and encourage diversification
– Limit: A maximum of 25% of net own funds to a single counterparty
– Objective: To prevent banks from being overly exposed to a single borrower or group, thereby protecting depositors and maintaining financial stability
This limit is an essential component of Ghana’s banking regulations, aimed at ensuring the soundness and stability of the financial system.
The Corporate Governance Concern
Dr. Atuahene maintains that for GCB Bank to breach the rule signals weak corporate governance. He cannot fathom why the board members sat aloof for this to occur, knowing very well the existence of the rule.
He explains that the “weak corporate governance” has made GCB excessively exposed to the COCOBOD. To him, the high exposure creates what he refers to as seismic risk, meaning that in the event of the collapse of COCOBOD, GCB will be highly affected.
He therefore indicated that they cannot pay dividends to shareholders as directed by the Bank of Ghana because it has flouted the law. To him, the regulator is just applying the law by cracking the whip.
“It means the corporate governance was bad. Because if the directors were up and doing, they would have seen it earlier and possibly notified the BoG for remedies,” he said.
The Impact on Investor Confidence
The question now is whether this directive for the bank to halt dividend payouts will dent investor confidence or simply be viewed as a procedural bump. For some investors, dividend payouts are a key indicator of a bank’s strength and reliability.
The postponement, emanating from breaches of law, could cause a few to reassess their positions. Others, however, see it as a sign of regulatory discipline, not weakness.
Investors will be watching how quickly GCB resolves this. The response time, not just the problem itself, will shape perceptions.
GCB says it is “actively engaging” with regulators to restore full compliance and proceed with the dividend as soon as possible. The bank has also reaffirmed its commitment to financial soundness and the protection of shareholder value.
For now, the market remains calm, but beneath that calm lies curiosity, and perhaps a little concern.
