The Fall of GN Bank: A tale of regulatory measures and financial mismanagement
Recently I saw the owner of the defunct GN Bank which was downgraded to GN Savings and Loans make a case for the release of his bank. I am not here to say if his request is legitimate or illegitimate as the case is still in court I guess.
I think I owe it to you my reader and financial enthusiast to bring into memory the events that led to the closure of the Savings and loans Company belonging to the once vibrant politician and businessman.
This is the reason why I have taken the time to put this article together for you. I am here to present the facts only as a financial or what others will call a Business Journalist who covered the events at the time which began when I was at Citi FM through Business And Financial Times and I ended my work with Joy Business at Multimedia Group Limited before setting up NorvanReports.com
In August 2019, the financial landscape of Ghana underwent a significant transformation as the Bank of Ghana (BoG) revoked the licenses of 23 insolvent financial institutions, including the once-thriving GN Bank, which had been reclassified as GN Savings and Loans Limited.
This action was not abrupt but the culmination of ongoing financial challenges and regulatory breaches that plagued GN Bank over the years.
The closure was part of a broader clean-up exercise aimed at restoring stability and confidence in Ghana’s financial sector, which had been marred by insolvency and poor governance.
The Genesis of GN Bank’s Troubles
Originally incorporated as First National Savings and Loans, the institution received a universal banking license in 2014 and rebranded as GN Bank. The transition to a full-scale bank was marked by rapid expansion and ambitious service delivery, particularly targeting the underserved sectors of the economy.
However, the narrative began to shift in 2018 when the Bank of Ghana introduced new regulatory capital requirements, mandating banks to raise their minimum capital from GH¢120 million to GH¢400 million.
Failing to meet these new requirements by the December 31, 2018 deadline, GN Bank was compelled to downscale its operations.
In January 2019, at its request, the BoG approved GN’s transition back to a savings and loans company. This reclassification was intended to allow the institution to manage its size and capital more effectively, but it merely delayed the inevitable.
Liquidity Crises and Regulatory Violations
Post-reclassification, GN Savings and Loans continued to struggle with severe liquidity issues, exacerbated by a failure to meet numerous conditions imposed by the regulator. Despite the efforts, the financial condition of the institution deteriorated further, reporting both a negative capital adequacy ratio and negative net worth.
The liquidity crisis became apparent as customers faced increasing difficulties accessing their deposits, sparking widespread complaints to the Financial Stability Department of the Bank of Ghana.
Moreover, regulatory investigations revealed significant violations. GN’s adjusted capital adequacy ratio stood at a staggering -61%, far below the minimum requirement of 13%.
The institution also failed consistently to meet the cash reserve requirement of 10% of its total deposits, a critical indicator of financial health.
Excessive Exposure to Related Parties
One of the most glaring issues was GN’s excessive financial exposure to related entities within the Groupe Nduom network, its parent company. This not only violated prudential norms but also involved large sums that were poorly managed or unaccounted for.
Funds meant for banking operations were inappropriately channeled to sister companies and used to pay off other debts within the group, significantly straining GN’s liquidity as we were informed by the Central Bank
Government Debt and Mismanagement Allegations
Dr. Paa Kwesi Nduom, the president of Groupe Nduom, argued that the government owed GN a substantial sum, which, if paid, could potentially resolve its financial woes.
However, the Bank of Ghana contended that even if these claims were legitimate, they would not suffice to cover the bank’s capital deficit.
The government’s alleged indebtedness became a central theme of Nduom’s argument against the revocation, positing that the bank’s collapse could have been averted had these funds been released.
The Final Straw
The final straw came with the discovery of unauthorized and undocumented transfers of significant amounts of depositor’s funds to International Business Solutions, a U.S.-based company also owned by Groupe Nduom.
This act according to the central bank breached several regulations, including the Foreign Exchange Act and banking notices aimed at safeguarding depositor funds.
Implications of GN’s Closure
The revocation of GN Bank’s license, though drastic, was deemed necessary by the BoG to protect the financial system and the interests of depositors.
It served as a stark reminder of the crucial balance financial institutions must maintain between expansion and regulatory compliance.
For the broader economy, the fall of GN Bank underscored the risks associated with inadequate financial governance and the systemic impact of large-scale financial failures.
Looking Forward
The saga of GN Bank serves as a critical case study in regulatory oversight and financial management within Ghana’s banking sector.
As the sector continues to evolve, the lessons from GN’s downfall highlight the need for robust regulatory frameworks, stringent compliance checks, and transparent management practices to ensure the stability and reliability of financial institutions.
This episode also reflects ongoing challenges in the interplay between public financial management and private sector stability, emphasizing the need for timely fulfillment of public sector obligations to prevent similar financial disruptions in the future.
In conclusion, the closure of GN Bank is a narrative of regulatory necessity and financial mismanagement, serving as a cautionary tale for other institutions navigating the complexities of financial regulations and economic expectations in emerging markets like Ghana.
This article sounds like a PR defense for the BoG. GN Bank was liquid until they experienced a heavy panic withdrawal by customers due to the BoG’s constant reminders to the public of banks that had not recapitalised. The reminders bacame like threats to customers.Customers in protecting their investments and having learned from UT and Unibank case, rushed on the bank. This action from the BoG was totally needless and all the research studies, I read on BoG’s methology for the banking sector cleaning up, disagreed with BoG as it was counter productive.