M&A Directive: BoG highlights requirements for approval
The Central Bank, in its new Mergers and Acquisition Directive for banks, and Specialised Deposit Taking-Institutions (SDIs) has highlighted a number of conditions or requirements to be met by prospective banks and SDIs that would either want to acquire or merge with another bank or SDI.
The Bank of Ghana (BoG) document containing the new set of directives and as perused by norvanreports indicate that, prior to the approval of a merger or acquisition request by a bank or SDI, the Central Bank per section 52 of the Banks and Specialised Deposit Taking-Institutions Act 2016, (Act 930), will consider the following;
- the financial and managerial resources and future prospects of the existing and proposed institution, or the surviving or acquired institutions,
- the effect of the proposed transaction on competition,
- the convenience and needs of the community to be served,
- the risk to the stability of the banking or financial system, and
- the effectiveness of the existing bank or specialised deposit-taking institution involved in the proposed transaction in combating money laundering and terrorist financing activities.
According to the Central Bank, a proposed merger and acquisition transaction that has the effect to substantially lessen competition shall not be approved unless it finds that the anti-competitive effects of the proposed transaction are clearly out-weighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served.
In the new directive, the BoG asserts that it will only approve a merger or acquisition of a bank or SDI if it is convinced that a proposed merger or acquisition arrangement will satisfy the following;
- shall be for the benefit of the stability of the financial system as a whole;
- shall not be detrimental to the interest of the depositors and other creditors;
- is in compliance with all applicable regulatory and other prudential requirements/norms of the Bank of Ghana;
- satisfy on an on-going basis, the regulatory minimum capital and liquidity requirements as prescribed by the Bank of Ghana;
- would result in an ownership structure that does not pose ownership concentration risk to depositors and financial stability; would enhance the Combined Entity’s risk management systems, corporate governance practices, promote safe and sound operations and allow for effective supervision of home and host authorities where applicable.
Application for mergers and acquisitions by banks and SDIs, the Central Bank further notes in its directive, shall be a three (3)-stage approach with two (2) inherent approval stages for a merger or acquisition application by a bank or SDI.
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The 3-stage approach the BoG revealed include; Pre-Merger/ Acquisition Consent; Provisional Approval; and Final Approval.
Background
The BoG on Friday, August 6, 2021 issued the Mergers and Acquisition Directive for banks and SDIs in the country.
The new directive by the Central Bank seeks to operationalise relevant sections of Act 930 of the Banks and Special Deposit Taking-Institutions (SDIs) Act 2016 pertaining to mergers and acquisitions by providing guidance on the processes and procedures for evaluating applications for mergers and acquisitions and the required information, documents or agreements to be submitted to the Bank of Ghana.
The directive is also to set minimum conditions that must be fulfilled by the parties to the proposed merger or acquisition.
According to the Bank of Ghana (BoG), the directive will not adversely affect the competition and stability of the financial system.
