The Bank of Ghana (BoG) is looking at the option of withdrawing liquidity support for one of the troubled banks as a result of liquidity and other challenges that confront this bank.
The situation could force the regulator to appoint an advisor to deal with the current situation at the bank, resulting in management takeover of the bank.
Alternatively, it could result in a complete resolution in line with the tenets of the new Bank and Special Deposit Taking Institution Act.
Sources say the troubled bank received a communication from the Central Bank regarding its current status last week. It is also not clear for what might have influenced this decision, but industry players say it could due to the current structures at the bank.
They believe the structures are not helping with respect to the funds that the regulator is pushing into the bank.
Some of the challenges being faced by the bank include:
1. High funding costs which has led to low margins including on the banks profitability.
2. High impairment levels of loans (non-performing), liquidity challenges
3. Impaired investments have not been adequately provided for in line with the minimum required;
4. High operating costs leading to losses
6. Inability to meet its primary reserve ratio which has resulted in the persistent use of the emergency liquidity support
7. Inability to meets demands on this bank for purposes of clearing
The troubles of the bank have deepened by the panic withdrawals experienced from some of its prime core customers over the past months.
This has resulted in some serious pressure on its finances and even making it difficult to meet some cash demands made by its customers.
To make matters worse, the bank is reported to have breached concentration limits on deposits and lending exposures which makes it vulnerable to a single action of deposit withdrawal and loan non-payment by a single client.
With the current situation, the failure of this bank to secure huge deposit inflows over the course of the coming weeks will make the situation dire unless the Central Bank steps in to provide some form of a cushion.
In the absence of such a support from BoG, two options might be left for the regulator if it goes ahead to take the said troubled bank off life support.
The Central Bank might be forced to appoint an individual to directly supervise the operations of the bank or be compelled to take over the bank by appointing an administrator.