The liquidation of Prime Bank Gambia has caused some general panic and confusion in the banking industry, as customers of both the bank and other banks in the country are afraid that such a big bank is wrapping up at this point in time.
The bank has been the second to close down in two years.
The Central Bank of The Gambia on Tuesday issued a press release stating that Prime Bank is closing down its operations in the country because its parent company, Societe General de Baque Liban, has opted to divest its subsidiary in The Gambia, hence the decision not to augment the bank’s capital to the required minimum capital of D200 million.
Prime Bank is sufficiently liquid to meet its obligations to depositors, other creditors and any other person entitled to funds or property thereof.
The customers, who are compelled to withdraw their savings from the bank, have raised concerns over the bank’s closure.
“I was shocked when I hear this sad news on the television. It has been my preferred bank but we the customers are left with no other choice except to withdraw our savings,” says one of the bank’s customers who spoke on condition of anonymity, after taking her deposits from the bank.
Prime Bank is the second financial institution in the banking industry to liquidate, after Oceanic Bank also failed to meet the minimum capital requirement of D150 million in 2010.
“Now which bank is going to close next,” Ousman Jammeh, a customer of one of the local banks in the country, asked rhetorically, while expressing concern over the closure of Prime Bank, a bank he said one of his friend was banking with.
Most or all other loss-making banks in the country were able to increase their capital requirement through support of their parent companies.
Others have urged their Gambian shareholders to raise the additional amounts to remain in business.
It should be noted that most of the banks in the country are running at a loss hence their inability to increase capital internally on their own.
The increment of the capital requirement started in 2008 when the Central Bank of The Gambia (CBG) issued a directive increasing the minimum capital of banks in two stages from D60 million to D150 million and D200 million to be observed by end December 2010 and end December 2012 respectively.
At the time of the first appointed date, December 2010, eight of the fourteen banks, then, were able to increase their capital requirement on time before the deadline.
Five of the six remaining banks did so at the eleventh hour when the Central Bank through the Ministry of Finance threatened to revoke banking license of any bank that default in meeting the requirement.
However, it should be noted that increasing the minimum capital by more than 100%, that is from D60 million to D150 million, was such a mammoth task for the banks some of whom were barely making any breakthrough.
It should also be noted that those banks that increased their capital on the last minute, in 2010, did so with the support of their shareholders who they virtually paid no dividend because they were not making any significant profit.
A higher minimum capital requirement, the Central Bank says, serves several purposes. “It would ensure that banks are better able to withstand periods of economic and financial stress and therefore support economic growth; maintains market confidence in the solvency of the banking system; and imposes market discipline, provides a large cushion to protect tax payers from the risk of being called to bail out failing banks.”