SSNIT On Assets 'Selling Spree'

Ghana’s only pension fund manager, SSNIT, has in recent times embarked on a ‘selling spree’ of some of its assets to meet the challenges of the new pension law. Suleiman Mustapha examines the trend.

The Social Security and National Insurance Trust (SSNIT), is downsizing its investment portfolio and dumping risky assets in the financial sector to meet regulatory challenges of the new pension regime.

The national pension fund manager has, therefore, embarked on quickly disposing off some of its liquidity crunched assets in the banking sector that are yet to meet the GH¢60 million recapitalisation requirement set by the Bank of Ghana.

The local banks have up to December this year to meet this minimum capital benchmark.
As SSNIT reworks its strategy in the national economy, its equity holdings in some non-listed banks that are struggling to meet the regulatory requirement have either merged or completely been acquired.

Some of those banks have bad loans clogging up their balance sheets and are fast becoming a primary target for bargain, as hunting investors seek to acquire more of SSNIT’s investment in the financial sector.

Even high yielding investments such as the Trust Bank (TTB) has just been shed off by SSNIT to Ecobank and the new owners are set to rebrand the bank by June this year.

First Atlantic Merchant Bank is the second bank in which SSNIT has divested its interest. Nigerian-based equity firm, Kaderi Nominees, bought over SSNIT’s 50 per cent stake in First Atlantic, to exercise a controlling interest.

Merchant Bank, one of SSNIT’s most prized assets in the 1990’s, is now just turning out to be a liability on the books of the pension fund manager. Already, preparatory discussions are underway for a takeover of the bank by a strategic investor.

First Rand of South African is likely to complete negotiations with SSNIT for the acquisition of Merchant Bank by June this year.

It is not clear what SSNIT intends to do with its interests in other banks such as the Prudential Bank and Ghana International Bank, if they are unable to meet the Bank of Ghana’s recaptalisation deadline of December 2012.

SSNIT has interest in 12 of the country’s commercial banks, which include: Cal Bank, Ecobank Ghana, Ghana Commercial Bank, HFC Bank, SG-SSB and Standard Chartered Bank, each listed on the Ghana Stock Exchange.

Others in the non-listed category include Fidelity Bank, First Atlantic Merchant Bank, Ghana International Bank, Merchant Bank Ghana, Prudential Bank and The Trust Bank, which has just been acquired by Ecobank.

In the past, the fund has often been criticised for venturing into failed investments and for running a bloated and expensive bureaucracy. Though it has recorded some gains in several ventures, and has been able to meet its obligations to pensioners.

The International Monetary Fund (IMF) has criticised SSNIT in a recent financial stability assessment of Ghana about its dominance in the financial services sector, saying that it distorted the operations of that system.

"An unresolved issue is the role of SSNIT in the financial system. Being a majority shareholder in several banks and a large depositor of others conflicts with its role as a manager of pensions, and distorts the operations of the financial system," the IMF said.

But the Bank of Ghana explained that SSNIT functioned as a “stabilising force” in the financial sector. However, a worry for the Central Bank, he said, was that SSNIT did not seem to have an exit strategy for its investments, and lacked the required expertise to manage the banks and institutions in which it held majority shares.

The new pension law As SSNIT reconfigures its holdings, it faces a delicate task of creating the right balance of investments that guarantees returns so it can continue to achieve its mandate as trustee of pensions.

In the government's new pension law, the management of pensions will be shared between SSNIT and private fund managers, while workers could take advantage of a third tier under the new scheme to build up their own savings.

The new pension law requires that out of a total contribution of 18.5 per cent of the basic salary that is supposed to be paid by employers on behalf of their employees to SSNIT, five per cent is expected to be transferred by SSNIT to approved trustees for management on the behalf of scheme members.

The approved trustees, who will compete for the funds, are subsequently required to manage the contributions and pay lump sum benefits to workers upon attainment of the retirement age, in addition to the monthly pensions to be paid by SSNIT to the pensioner.

The third-tier schemes will mainly make provision for privately managed provident funds and personal pension schemes that enables self-employed artisans, traders, farmers and others operating in the informal economy to also prepare for a dignified retirement.

As a result, the board of SSNIT has been considering ways to limit its involvement in these entities.

SSNIT’s role in the finanacial sector Since its establishment, SSNIT has held a dominant position in the financial sector. Besides being the biggest provider of pensions, it holds a substantial amount of deposits in the banking system.

In the capital market, it holds interests in 23 of the 35 listed equities on the stock exchange, and accounts for over 81 per cent of local funds under management.

Additionally, SSNIT is a primary dealer in government securities and holds significant equities in two insurance companies, including the biggest, SIC.

For the financial system as a whole, the fund controls about 12 per cent of total assets, valued at GH¢2.74 billion (US$1. 88 billion) as of December 2010, representing six per cent of Gross Domestic Product (GDP). GB.

Source: Daily Graphic