Dr Frank Odoom
The saying that haughtiness comes before a fall has been amply confirmed by the mess in which Merchant Bank Ghana Limited finds itself currently.
If ever there is any particular group of persons who are to be blamed for the current imbroglio being experienced by the bank then it should be no other than management of bank.
The impudence with which management of the bank discarded proposals by the sacked workers’ union chairman of the bank, Rev. Jonas Koranteng-Smart in July 2011 is what has tumbled the bank till now.
A letter sighted by CITY & BUSINESS GUIDE from the Professional & Managerial Staff Union (PMSU)/LU of Merchant Bank and signed by Jonas Koranteng-Smart, the then chairman of the union, revealed that the downfall of the bank was predicted by the union long before the crisis, but management disregarded the union’s advice and later became hostile to its leader.
The workers, referring to the bank’s financial performance for the half-year ended June 30, 2011, stated that there was a significant drop in interest income.
“By implication, the bank has not made any serious business growth in 2011 and all efforts are concentrated on non-performing loans (NPLs).”
It said that the drop in interest income on year-on-year basis was 60 percent which meant that while the bank was incurring expenses, no effort was made to build new business to dilute the NPLs position.
“Interest expense/interest was 52 percent in 2010 and has gone up by 74 percent in 2011.”
“While concentration has been shifted from fixed deposits (FDRs), no new cheap deposits are being mobilized to reduce the interest expense. Therefore the Head of Finance’s analysis on interest expense that it is gone down in 2011 is not accurate. Clearly, no deposit mobilization effort is taking place in the bank and secondly, retail banking and the new cares driving around in the name of sales, are adding to our operating costs.”
The workers’ union indicated also that fees and commissions dropped by 64 percent since the bank, which had always done well in trade finance (LCs) and thrived on inflows from Vigo remittances, amongst others, had stopped those.
With total operating cost increasing by 30 percent, the bank was not generating any material income but rather incurred costs.
In their analysis, the workers commented: “The net effect of the above was a net trading income at a loss position of GH¢12 million. If you add up NPL to the net trading/operating income, the bank has made a loss to date of GH¢20 million.”
They added that such losses raised serious concern.
“From the financials as at June 2011, there is no strategic direction. We have observed that since the beginning of the year, there has been a consistent decline of shareholders’ value. From the accounts, shareholders’ value dropped by GH¢20 million implying that shareholders may have to consider the issue of recapitalization to be able to meet the required capital of GH¢60 million.”
Furthermore, they revealed that the bank’s board approved of six asset products for the consumer banking unit including Merbank Personal, Executive, Scheme Personal Loans, Payday Loan, Cash Secured Loan and Auto Loan.
According to them, the risk assessment of the products was unknown since these were launched with no apparent consideration for the inherent operational risk and its effects on the bank’s risk profile.
Additionally they stated that there was poor deposit growth particularly retail and current accounts and also the creation of new loans.
“It is our candid view that immediate direction is needed to save the bank from imminent collapse. If things continue the same way, we shall have no bank.”
The present situation was foreseen about two years ago, but management, which was impervious to advice from the workers union at the time, continued with its ‘no strategic direction’ callousness.
The bank is now a walking corpse.
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