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Race for Recapitalisation – CAL Bank Leads Local Banks


CAL Bank, one of the few surviving indigenous banks, is set to increase its stated capital from GH¢100 million to GH¢350 million in May this year.

In what will sound as a surprise to many analysts, considering the performance of the bank in recent years, the recapitalisation will be done through a seamless arrangement that will come at virtually no cost to the bank.

The bank intends to transfer a total of GH¢250 million from its income surplus to stated capital in a bid to shore up its capital to levels required by the central bank.

The bank announced its intentions in a notice to shareholders, detailing the agenda for the annual general meeting (AGM) on May 3, 2018.

Details of transaction

In a recapitalisation plan due to be approved by shareholders at the AGM, CAL Bank said it would request shareholders approval to transfer GH¢171.68 from income surplus to its stated capital.

It will also table another resolution requesting shareholders approval to transfer GH¢78.32 million from the income surplus into the stated capital but through a rights issue. Under the rights issue, the bank intends to issue one share to every interested shareholder in return for seven shares held, the notice said.

Should shareholders approve the two motions on May 3, CAL Bank, which started commercial banking operations in 2004, will then be GH¢50 million shy of the BoG’s new minimum capital requirement of GH¢400 million.

On how the bank intends to plug that hole, its Chief Finance Officer (CFO), Mr Philip Owiredu, said it was “most likely” that another transfer from the income surplus would be done but later in the year.

“That GH¢50 million could come out of our surplus and we could also raise a funding,” he told the Graphic Business on March 28.

“If we have an investor who is interested, then we will go to shareholders but it is most likely that the balance will be from the surplus. If we have been able to do GH¢250 million from there (surplus income), then doing GH¢50 too will be possible,” he said.

A successful transfer of GH¢250 million from the bank’s income surplus will leave a balance of about GH¢26 million.

CAL Bank’s audited accounts for 2017 showed that some GH¢276 million was in its surplus account at the close of the year.

The paper understands the bank is hopeful of building the income surplus account in excess of GH¢50 million before the December dateline to be able to make a transfer into the stated capital.

BoG requirement

The Bank of Ghana (BoG) is asking the banks to increase their minimum capital requirement to GH¢400 million by December this year through three ways; fresh capital injection, transfer from surplus account or a combination of the two.

By recapitalising to GH¢350 million in May without resorting to fresh capital, CAL Bank is leading the contingent of local banks to meet the central bank’s requirement, which is expected to result in dilution in indigenous holdings and consolidation among weaker banks.

Fantastic move

In its 14 years of operation, CAL Bank has posted strong profits on annual basis, albeit inconsistent, but instead of expending all through dividend payments, the bank has maintained a tradition of preserving a chunk in its surplus account.

From GH¢124.3 million in 2014, funds in the income surplus account rose to GH¢162.4 million in 2015 before declining to GH¢144.9 million in 2016 on account of a sharp fall in profits. Last year, it rose to GH¢175.9, almost enough to make up for the bank’s capital deficit.

An investment banker and chartered accountant, Mr Alhassan Mahama Iddrisu, said in a separate interview that CAL Bank’s tradition was excellent and would help eliminate the cost that the bank would have incurred in raising new funds.

“It is fantastic for a local bank to be able to recapitalise without ‘sweat,’” Mr Iddrisu said and added: “It means that there is a conscious effort to have a lot of cash inflows for their operations instead of waiting for deposits. This reduces their cost of operations in terms of depositors looking for interests or them relying on fixed term investments.”

Had the bank resorted to fresh capital from the foreign market, he said, its profits would have had to pay for it at a comparatively higher cost.

“A rights issue would have been okay too, but the best is just moving the funds from surplus income into the stated capital,” he added.

Source: Graphic Online

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