Reported financial statements of First Allied did not reflect its true state of affairs-BoG

The Bank of Ghana has revoked the licences of 23 Savings and Loans Companies.

These actions were taken pursuant to Section 123 (1) of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930), which requires the Bank of Ghana to revoke the licence of a Bank or Specialised Deposit-Taking Institution (SDI) where the Bank of Ghana determines that the institution is insolvent. 

One of the popular and affected companies is First Allied Savings and Loans Companies.

A detailed statement issued by the central bank among other things indicated ”a review of the institution’s operations in July 2018 revealed that its reported financial statements did not reflect its true state of affairs. An adjustment to the financials resulted in an assessed negative Capital Adequacy Ratio and negative networth mainly due to huge accumulated losses recorded over the years, additional provision for loan losses and reversal of unearned interest receivables from income.”

On some of the specifics, the BoG said: The Institution purportedly advanced credit facilities to various institutions, predominantly churches and schools without proper documentation. These facilities are non-performing  The Institution stopped submitting prudential returns to Bank of Ghana in June 2018, citing technical challenges. The Institution cannot meet the deposit withdrawals of its customers with many customer complaints received by the Bank of Ghana.”

Meanwhile, the Bank of Ghana has also appointed Mr. Eric Nipah as a Receiver for the specified institutions in line with section 123 (2) of Act 930.

11. FIRST ALLIED SAVINGS AND LOANS LIMITED

First Allied Savings and Loans Limited (FASL) was licensed by Bank of Ghana to operate as a savings and loans company on March 27, 1996. 

First Allied Savings & Loans Ltd. (FASL) was found to be insolvent with a negative Capital Adequacy Ratio and a negative net worth as of 31 March 2018.  The Bank of Ghana directed the Board Chairman/Majority Shareholder and Management of the Institution to immediately inject additional capital to address the capital deficiency.  In June 2018, the Bank of Ghana received reports of a run on the institution FASL due to its inability to meet customers’ deposit withdrawals, especially at its Kumasi and Adabraka Branches. The liquidity challenges later spread to all the twenty-seven (27) branches of the Institution across the country. The shareholders have failed to address these liquidity challenges. 

A review of the institution’s operations in July 2018 revealed that its reported financial statements did not reflect its true state of affairs. An adjustment to the financials resulted in an assessed negative Capital Adequacy Ratio and negative networth mainly due to huge accumulated losses recorded over the years, additional provision for loan losses and reversal of unearned interest receivables from income.  

The specific issues that led to the revocation of its license included the following:

  1. The institution’s Net worth of negative GH¢661.84 million as at end May 2019 indicates that its paid up capital is impaired in violation of Section 28(1) Act 930.
  2. The institution’s capital adequacy ratio of negative 263.21% as at end May 2019 is in violation of Section 29(2) of Act 930. 
  3. The income surplus and profit & loss accounts per the General Ledger as at 31st August, 2018 showed losses but the institution reported positive Income Surplus and Profit and Loss figures in the prudential returns as at 30th June 2018 submitted to the Bank of Ghana.  
  4. The reported deposit liabilities were grossly understated as at end-June 2018,in effect, reducing customer deposits to conceal losses over the years. 
  5. Total non-performing loans constituted 88.89% of the institution’s total loan portfolio. 
  6. The current accounts of eight (8) related companies linked to the major shareholder were overdrawn in excess of GH¢100.00 million and were nonperforming. 
  7. The Institution purportedly advanced credit facilities to various institutions, predominantly churches and schools without proper documentation. These facilities are non-performing 
  8. The Institution stopped submitting prudential returns to Bank of Ghana in June 2018, citing technical challenges.
  9. The Institution cannot meet the deposit withdrawals of its customers with many customer complaints received by the Bank of Ghana.
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