In a couple of months to come, most of the local banks will be merging compulsorily. The raising of the minimum capital requirement will compel local and some foreign banks to merge and operate within the schemes of the newly formed organisations. For some of the banks, merging is the only option available now.
The Bank of Ghana has outlined the procedures or processes by which these institutions must operate and cooperate to achieve the ultimate aim of merging. These outline may not be enough to ensure a smooth merging for most of the banks. Merging and acquisitions are mostly arranged or rather they are mostly planned by the management and the board of the institutions involved. Many organisational, managerial, financial and capital elements are often considered deeply by the highest authority of the institutions merging. The experience of the happenings in Ghana now is opposite to the known procedures to merge two or more companies. The banks to be merged are under compulsion to merge without a pre-planned set of activities of the institutions.
The benefits of merging two companies cannot be underestimated as the companies stand to enjoy economies of scale and synergies that can lead to greater efficiency and profitability. The Bank of Ghana’s objective to help broaden their capital base through an increase in the capital requirement is befitting. This is because, a country planning to move beyond aid must have its banks both local and foreign ready to offer the funding needs of companies. This can only be achieved by having a strong balance sheet and available capital to provide the debts needs of contractors and other business people.
Evidence elsewhere indicate that merging has huge benefits for companies and the ultimate consumers of the services and products provided by the merged institutions. Amalgamated bank in South Africa is now able to efficiently fund many activities of some businesses as a result of a broadened capital base. The merits of merging are numerous as their cons.
Some of the identified negatives may include the layoffs dilemma, consumer switch and perceptions, culture clash and higher prices of products and services in order to cover up costs. The general goal for both the bank of Ghana and the banks to be merged must be a focus on efficiency by putting measures in place to curb failures from happening.
The procedures outlined must be spelt out properly for the banks to decently roll out a better merging process. Otherwise, there is a looming corporate governance fiascos.
The experience of Capital bank and UT bank some months ago should be a case from which the Central Bank has to learn lessons from its own decisions. The bank of Ghana gave its instructions to the board to indicate how they will solve their liquidity issues which they defaulted on those instructions. The bank of Ghana needs to carefully take the banks through a step-by-step process in the activities leading to a right merging.
Allowing the banks to carry out their own merging procedures may not help achieve the needed goal. The various elements that are considered as the negatives should be target areas for the Central Bank to educate the board and management of the banks to have their activities merged. This is because the need to combine the schedules and activities of some local banks is emergent. Mergers and acquisitions must go through rigorous activities of analysis in order to be mainstreamed. The available number of months for the banks to merge are not sufficient enough for such an impromptu integration.
The better option in this regard is for the bank of Ghana to institute a committee to help the banks execute a successful merging. Merging under compulsion due to the inability of banks to meet a requirement is in order. However, the repercussions of such emergent strategies should be a source of concern by the Bank of Ghana. The Governor and the staff of the central bank must form subcommittees to engage in the merging procedures in order to prevent a possible failure and ensure the attainment of the desired goals eventually.
To many people, the benefits that will accrue to the state in the merging of companies are considerably huge and that all the local banks that cannot meet the minimum capital requirement should be compelled to integrate their activities. This must be done cautiously and definitively to consolidate the financial intermediation of the banks in lending to the public.
Emmanuel Kwabena Wucharey.