Despite reports that the Bank of Ghana(BoG) may compel all banks in the country to meet the new capital requirement shortly, Banking Consultant, Nana Otuo Acheampong has told Citi Business News the regulator is yet to come out with an economic capital requirement after which the regulatory capital will follow.
The economic capital, according to him, will assess the economic activities of banks in the country to determine the economic capital structures under which they will operate.
Speaking to Citi Business News, Nana Otuo Acheampong disclosed that the International Monetary Fund (IMF) is currently meeting with the central bank to design an economic capital structure for commercial banks after which the regulatory capital will be announced early next year.
“We have regulatory capital, and economic capital. Regulatory capital is where the regulator sets a one side stator capital and the economic capital is based on the economic activities of the banks involved, so if you are small, your capital will be small and if you are big your capital will be big depending on your economic activities,” he said.
He explained that the procedure requires a thorough assessment hence plans are already underway to classify commercial banks based on economic capital.
“As we speak the BoG has set up an economic committee together with the IMF to look at the establishment of an economic capital as opposed to regulatory capital and they are due to report next year,” he said.
Providing some more explanation on the differences, Nana Otuo Acheampong stated that economic capital will be linked the economic activities of the banks.
Economic capital is the capital that you determine internally according to your economic activities, lets take for instance Barclays Bank versus Bank of Baroda, the economic activities of Barclays bank is far higher than the economic activities of Baroda, but under regulatory capital both of them are supposed to have the same type of minimum capital,” he said.
He, however pointed out that “when we move to economic capital you would expect their capital structures to be different because the less activity, the less capital you have, so as a requirement of Basel II, they implored regulators to look at aligning economic capital with regulatory capital,” he stressed.
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By: Lawrence Segbefia/citibusinessnews.com/Ghana