TOR debt still haunting GCB

The Ghana Commercial Bank (GCB) is still recovering from series of negative impacts that the Tema Oil Refinery (TOR) inflicted on its operations. Maxwell Adombila Akalaare reports 

THE government’s decision to convert a GHC572 million-loan owed the Ghana Commercial Bank (GCB) by the Tema Oil Refinery (TOR) into a bond has returned to hurt the bank, causing its profits to jump down by 65 per cent in the 2011 financial year.

That is because the conversion of the loan into a bond caused the bank to lose more than half of the 25 per cent annual interest it enjoyed on the loan prior to the conversion. That consequently pulled GCB’s profits down from GHC48.0 million in 2010 to GHC16.7 million in 2011.

The 2011 financial results of the bank also showed that an almost GHC60 million rise in the bank’s operational costs in 2011 added to GCB’s record high loss in the year.

Managing Director of the bank, Mr Simon Dornoo, admitted during a media interaction in Accra that the dip in the bank’s 2011 profits was “a combination of a sharp decline in revenues and a rise in operational costs.

“Total income is a function of the loan and investment portfolios. In 2011, income from our loan book was down by more than half because the bond that government issued to pay the loan became an investment to us. However, the yield on that investment was lower than the yield on the loan and that obviously had a knock on effect on our loan portfolio,” he explained.

The government in 2010 and 2011 issued bonds to defray a total GHC572 million-loan owed to GCB by the TOR, much of which was accumulated to the stated-owed commercial bank as a result of years of under recovery of production and operation costs at the refinery.

Although the decision to pay off the loan through bonds was hailed as a breather to GCB due to the crippling effect the loan had on the bank’s operations, the bonds’ annual yield of 12 per cent has now limited interest income to the bank leading to the substantial dip in yearly profit.

“The loss was simply because of TOR,” the MD said but admitted that the bank’s decision to set aside some money to cater for some long-outstanding balances also played a part.

“In actual sense, we made gains in 2011 over the previous year but the impact of the TOR debt on our loan portfolio together with other non-credit related costs resulting from our restructuring significantly cancelled those gains,” he said.

He was, however, confident that the situation will normalise into the year.

The bank’s performance in the first quarter of 2012 has already showed some significant improvements in profit and net interest income. Interest income in the first quarter of 2012 rose to GHC58.4 million from the GHC54.3 million it was in the first quarter of 2011.

The bank’s first quarter profit after tax also jumped by about 18 per cent to GHC23.4 million, developments Mr Dornoo said were clear testimonies of GCB’s readiness to redeem its image in the banking sector.

GCB, he said was currently restructuring its operations to enable it operate “like an institution” so as to reduce cost while boosting revenues.

“We have invested massively in restructuring our governance criteria and our risk management systems. We are confident these measures will bring returns in the coming years,” he said.

On the issue of the restructured Ecobank Ghana Limited now becoming the biggest bank in the country following its successful acquisition of The Trust Bank Limited (TTB), Mr Dornoo said “we will see who will be the biggest in the industry.

“They (Ecobank) have chosen to grow through acquisitions, we will do it organically and in the long run, we will all see who is going where,” the MD added.

The bank’s Chief Transformation Officer, Mr. Samuel Sarpong, also disagreed with suggestions that GCB under its current state needed to be downsized, arguing that such an action was not an end in itself.

“That theory is even floored because you can downsize and still operate at a loss,” he said stressing that the bank was currently aiming at improving efficiency in its operations rather that considering a downsize.