IDEAL FINANCE’S high non-performing loans (NPLs) ratio of 23.2% was mainly attributed to poor credit risk management which put the deposits of its customers at risk.
A report by the Bank of Ghana (BoG) which made this known said Ideal Finance, which was part of the Ideal Group of companies belonging to Dr. Nii Kotei Dzani, who is also a member of the Council of State, has been faced with severe insolvency and liquidity challenges over the past two years.
The BoG said it found key regulatory violations such as the adjusted net worth of negative GH¢117.5 million as of the end of November 2018, indicating that the paid-up capital violated Section 28(1) Act 930.
It faces a significant capital shortfall with a Capital Adequacy Ratio (CAR) of negative 33% in breach of the minimum required of 13%, with a corresponding capital deficit of negative GH¢188,257,625.35.
It is also facing a severe liquidity crisis with numerous complaints received by the BoG from aggrieved customers who have been unable to access their deposits with Ideal Finance for the past several months.
Failed Minimum Capital
It has consistently failed to meet the minimum cash reserve requirement of 10% of its total deposits.
Ideal Finance shareholders have failed to restore the bank to the required regulatory capital and liquidity levels in spite of long-standing promises that new capital was expected from foreign investors according to the report.
Adjusted Capital
The institution’s adjusted CAR of negative 32.8% as of the end of November 2018 is in violation of Section 29(2) of Act 930.
Contrary to section 64 (2) of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930), Ideal Finance’s exposure to its related party has consistently been above the regulatory limit of 25% of net own funds (NOF).
Exposures to related parties (FirstTrust Savings & Loans and Ideal Capital partners) were to the tune of GH¢63.19 million according to the report.
Unpublished Audited Accounts
“The company is yet to publish its 2018 audited accounts contrary to section 90 (2) of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930). Furthermore, the company did not keep accounting records in a manner that gives an accurate and reliable account of the transactions of the company, and did not therefore show a true and fair view of its operations.
“Ideal Finance has not submitted their returns since November 2018. All efforts to get them to submit have proven futile. An ‘onsite’ examination carried out in September 2017 revealed the institution did not appropriately classify fifteen (15) impaired loan accounts in accordance with the requirements of the Bank of Ghana’s Guide for Reporting Institutions, which resulted in an additional loan loss provision of GH¢14,255,275.53.”
Over-Exposure
“The institution was technically over-exposed to all its credit customers due to its negative net own funds position which is in violation of Section 62(1) of Act 930. 3. Credit facilities granted to the affiliates of the company were not approved by the board and the exposures were not reported to Bank of Ghana in breach of Section 70(2) and 70(4) of Act 930. Total related party loans totalled GH¢52.70 million.”
Merger
In a letter dated 25th June 2019, the BoG said it was notified of the intention to merge the operations of Ideal Finance Limited (IFL) and FirsTrust Savings and Loans Limited (FTSL).
A review of the documents submitted in connection with the proposed merger and all available records obtained from the two institutions revealed that the shareholders’ funds of Ideal Finance Limited (IFL) and FirsTrust Savings and Loans Limited (FTSL) as of March 2019 per the merger documents was negative GH¢62.18 million and negative GH¢93.22 million respectively.
The reported shareholders’ funds of IFL per the last submitted prudential returns as of November 2018 were GH¢28.89 million.
This was adjusted to negative GH¢117.50 million due to additional loan loss provisions and impaired investments, resulting in a decline in the reported CAR of 0.52% to negative 52.18%, indicating a capital deficit of GH¢171.92 million.
Shareholders’ Funds
Also, the reported shareholders’ funds of FTSL per the prudential returns for May 2019 of negative GH¢99.46 million was adjusted to negative GH¢174.10 million due to impaired investments, resulting in a further reduction in the CAR of negative 48.67% to negative 132.96%, indicating a capital deficit of GH¢189.13 million.
The CAR of the merged entity was, therefore, assessed to be negative 78.32%, with a capital deficit of GH¢361.05 million. BoG could not accede to the request to merge the operations of FirsTrust Savings and Loans Limited and Ideal Finance Limited.
The cash reserve ratios of FTSL as of May 2019 was 0.07% compared to the regulatory minimum of 10%. Both institutions are unable to meet customer withdrawal needs and the BoG has received countless complaints from customers of both institutions about their inability to access their funds. The use of landed property to shore up capital for the emerging entity is considered unacceptable in the light of the insolvent and illiquid state of the two institutions.
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