Financial firms to pay GH¢120k if they disregard rules on mergers and acquistions

The financial sector regulator, the Bank of Ghana (BoG) in a new directive has announced a GH¢120,000 fine for banks and Specialised Deposit-Taking Institutions (SDIs) who fail to comply with a new directive for mergers and acquisitions.

The new regulation has it that, “a person who contravenes a directive issued under this section is liable to pay to the Bank of Ghana an administrative penalty of not less than 2,000 penalty units (GH¢24,000) and not more than 10,000 penalty units (GH¢120,000).”

According to the Central Bank, the fine is in addition to any penalty provided under the Anti-Money Laundering Act, 2008 (Act 749).

Per the Act 749, persons who are found culpable of any provision regarding banks and SDIs are liable on summary conviction to a fine of not more than 5,000 penalty units (GH¢60,000) or to a term of imprisonment of not less than 12 months and not more than 10 years or to both.

Aside to these sanctions, offenders of the provisions contained in the new BoG directive risk losing their dividend, as the central bank, notes that offenders would be prohibited from the payment of dividend in respect of the shares.

Furthermore, it would prohibit the issue of ‘bonus shares’ or ‘rights issue’ in respect of the shares, and prohibit the exercise of voting rights in respect of the shares of offenders.

Not only that, it would annul the transfer, merger, amalgamation or reconstruction of institutions that contravenes the provisions under the Banks and Specialised Deposit-Taking Institutions Act, 2016 (ACT 930).

Objective of the new directive

This is to ensure that the interest of regulated financial institutions and its depositors, as well as its creditors, would not be threatened by a change in significant shareholding or control in that institution.

The directive is to also ensure that the merger and/or acquisition do not adversely affect competition and the stability of the financial system.

Through this directive, guidance on the processes and procedures for evaluating applications for mergers and acquisitions and the required information, documents or agreements have been clearly provided.

Requirements for mergers and acquisitions under the directive

This requires banks and SDIs to submit all relevant documents regarding any merger and acquisition to the Bank of Ghana.

“Parties seeking to undertake a merger or acquisition shall provide the Bank of Ghana with a shareholder’s list (including ultimate beneficiary owners of all its shares, indicating shareholders’ names, addresses, nationality, number of shares held, percentage of ownership held, class and type of shares held and the group to which the shareholders belong) as set out in Appendix I (Shareholders’ List) as at the end of June and December of each year and not later than 30 days after the reference date in line with Section 49(1) of Act 930,” the directive specified.

The directive, originally cited as the Mergers and Acquisitions 2018, is now cited as the Mergers and Acquisitions Directive, 2021, to properly reflect the year of issue to support referencing.

Per the 2021 directive, a merger or transaction involving a bank or specialised deposit-taking institution shall not take effect unless the Bank of Ghana approves the merger or transaction under the directive.

In the case of foreign banks, the directive provides that “a transaction involving a foreign bank shall not be approved unless the home supervisor of the foreign bank indicates that it has no objection to the transaction.”

In addition, a proposed transaction that has the effect to substantially lessen competition shall not be approved.

Such transaction would only be allowed if the central bank finds that the anticompetitive effects of the proposed transaction are clearly outweighed in the public interest in the probable effect of the transaction in meeting the convenience and needs of the community to be served.

BoG banking sector reforms

The Bank of Ghana embarked on a financial sector clean up, recapitalisation, and other regulatory reforms from mid-2017 to end-December 2018 in line with its mandate to promote the safety, soundness, and stability of the financial system to support economic growth.

This resulted in the collapse of some financial institutions including banks, and SDIs, some of which, were either acquired by other institutions or merged with others.

BoG approved three mergers involving six banks, effectively accounting for three more exits. The approved mergers were: First National Bank and GHL Bank Limited, Energy Bank and First Atlantic Bank and, Sahel – Sahara Bank and Omni Bank.

Additionally, the central bank merged five banks, BEIGE, Sovereign, Construction, UniBank and Royal Bank, to form the Consolidated Bank of Ghana.

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The revocation of the licences of these institutions, the bank said, had become necessary because they were insolvent even after a reasonable period within which the Bank of Ghana engaged with them in the hope that they would be recapitalized by their shareholders to return them to solvency.

The central bank also noted that per its assessment that the institutions had no reasonable prospects of recovery, and that their continued existence posed severe risks to the stability of the financial system and to the interests of their depositors.