- 30 Marks
CG – APR 2024 – L4 – Q1 – Undercapitalisation Effects on Corporate Governance and Recapitalisation Measures
Examine how undercapitalisation impacts corporate governance in a Ghanaian bank and assess practical recapitalisation measures to achieve high-performing status.
Question
The Board of Virtualbank Plc in Sikaman, has recently approved the mid-year Unaudited Financial Statement of the bank. The bank’s Capital Adequacy remains negative as the Credit Risk Reserve (CRR) exceeds the Paid-Up Capital and Statutory Reserves remains negative. Profit After Tax (PAT) remains negative because the negative Other Comprehensive Income (OCI) has also increased as compared to the previous quarters.
The situation suggests that the Capital of the bank must be restored and the Statement of Position (Balance Sheet) resstructured. You are aware of some regulatory forbearances including a period of four (4) years for Capital Resolution and Restruturing which have been sanctioned by the regulator. A comparative analysis of banks in Virtualbank’s Strategic Group, shows that its main strengths depend on some concentrated key customers, the spread of its physical branches and its newly segment-based Digital Channels for Corporate and Small and Medium Sized Enterprises (SMEs).
The Chairperson . Dr. Nathalie Abs-Oesi is particularly interested in how the current situation has affected the Corporate Governance of the bank.
REQUIRED:
(i) Critically examine how undercapitalization could affect the Corporate Governance of Virtualbank Limited. (30 marks)
(ii) Critically assess the practical measures the Virtualbank Board can undertake to recapitalise the bank and achieve a high performing status. (10 marks)
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