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Social innovator, entrepreneur, writer and researcher, Bright Simons has questioned the GH₵400 million minimum capital requirement by the Bank of Ghana (BoG), describing it as promotion of big banks over medium banks regardless of the business strategy of individual banks.

In his view, banks focus on difference segment of the business, and, therefore, not all banks need to be massive to be profitable and catalytic. 

“There are banks focused on segments of the market with less risk. There are banks better at managing risks. There are banks focused on small projects. There are banks targeting medium-sized businesses. In short, there are banks with less risky assets,” he added.

According to him, banks with fewer assets in total who perform critical roles in the country by providing credit at lower cost to niche customers they know extremely well do not need to be massive to be profitable and catalytic. 
He expressed worry that so little insight has so far been forthcoming from the lofty quarters where these decisions are taken, saying he would be happy to change his attitude to the policy in the face of superior argument, analysis, and logic.

In an article posted on his social media account, Simons, who is the vice-president of IMANI Ghana, said a $100 million in minimum capital if translated into Basel III terms might suggest that the Bank of Ghana sees the minimal viable asset footprint of a bank in Ghana as roughly a billion dollars.

For him, in a tiny economy of $42 billion, this is merely the triumph of size over substance. 
He is convinced that such consolidation may well reduce competition and simply act to shield already unresponsive market leaders. 

“Not when in the most sophisticated markets regulators are doing everything possible to spur competition and reduce the influence of the banking majors. 

“In the UK, we have seen nearly 20 new banking licenses in the last half a decade, with 20 more under consideration.
“In fact, both the PRA and FCA are now open to discussing capital requirements on a case-by-case basis.

“The notion that only giant universal banks can play essential roles in the top end of the economy isn't very persuasive. 
“India, with an economy several dozen times our size, has had a minimum equity/capital requirement of $77.5 million for a good while now without banks imploding under the weight of the economic obligations placed on them.

“Australia, one of the world's strictest banking jurisdictions, maintains a minimum own funds limit of $50 million.
“In Canada, the minimum paid up capital is a remarkable $5 million,” he added. 

‘Capital adequacy’ and liquidity ratios with absolute equity amounts

He cautioned against confusing "capital adequacy" and liquidity ratios with absolute equity amounts. 
“Both Basel III and the intimidating EU CRR both emphasise capital adequacy rather than minimum paid up capital for the simple reason that capital adequacy is the more effective instrument for matching a bank's safety buffers with its risk appetite. 

“And Ghana's 10% requirement, if well policed, seems fine enough. Minimum capital thresholds are somewhat more blunt,” Simons said. 

He stated that a large capital base does not translate in any significant sense to prudent banking practices.
He admitted that it is harder to do risk weighting and monitor governance and personnel competence than it is to measure the absolute levels of capital, but was quick to add that it is not the soundest excuse for preferring the latter.

“At any rate, technology is beginning to erode the differences among the different tiers of banking anyway. 
“A wag may say that it will soon be shrewder to bag 250 rural banking licenses (‘one district, one bank’) for GH₵250 million than one universal banking licence for GH₵400 million, if the goal is to aggregate privileges. 

“But the more serious point is that technology is on the verge of transforming risk management in ways never before possible, hence the aggressive push in more sophisticated markets to remove arbitrary barriers and promote smarter, more sensitive regulations that encourage competition and innovation whilst detecting fraud and cheating well before their effects escalate or cascade,” he added.