Ghana’s banking sector suffered huge setbacks leading to the collapse of 7 Banks between 2017 and 2018 financial years. The Bank failures were attributed to poor corporate governance, week risk management and non-performance of loans. Others like me, held responsible the government’s financial watchdogs for their horrible regulations and negligence. These led to capital deficit to support banking for depositors and provision of other services. The Bank of Ghana (BoG) moved swiftly to consolidate 5 of the Banks (Royal, Beige, Unibank, Sovereign, and Construction Banks) while Ghana Commercial Bank (GCB) took over the other two Banks (UT and Capital Bank). Surprisingly, all these banks are Local Banks.Two other Banks (Premium and Heritage Banks) in 2019 have also been consolidated.

  Today, the 34 banks in Ghana have been reduced to 23 due to the recapitalization requirement from BoG of GH400 Million. Banks which could not meet the sum have been merged and others have been downgraded. The total cost of creating sanity in the financial (Banking) sector has been estimated by BoG at GH 12 Billion.

Prior to the Bank collapse, there were no radical competitions among banks on Interest Rates even though the policy rate for lending from the central Bank kept dropping.  Trust between Banks and clients were abysmal, especially on investment packages and current accounts with much deductions on customers accounts they never knew anything about.

  Many instead, took the risk to deposit their savings with Ponzi schemes for higher fixed returns. In the financial sector, I believe that a perfect market competition in the banking sector tends to lower innovation and economic growth. Reducing the Banks from 34 to 23 means these banks must compete as well but the kind of competition among Banks is a concern. Banks in Developing countries like Ghana depends on domestic deposits or savings. Over the Decades, competition among Banks has been more of running promo-packs to raise funds to run the Banks. It will be good to move away from these similar promotions and concentrate on interest rates competitions to enable entrepreneurs and start-ups to secure credits. Banks can raise more monies from both the formal and informal sectors when the majority of the population is employed.  Employment leads to high savings and the reverse may lead to poor savings.

To lend customers or give out loans would depend on the fundraising capacity of the Banks. If more people deposits, banks may lend more irrespective of the policy rate cap. Remember, the recapitalization of Banks does not mean Banks have enough to lend but it is to spur consolidation. However, competition on interest rates would reduce the high interest on loans and debenture.

Again, the digital transformation agenda among the Fintech companies are disrupting the Banking sectors. The Fintech industry is growing and the huge wave of transformation in the financial sector is about trust, and efficiency of services. Banks must work hard to develop affordable digital processes to enable them to compete friendly to build trust among customers.

Due to the just ended disinfection exercise in the banking sector, there will be growing national regulatory pressures especially on risk diversification, monitoring managers (corporate governance) and auditing. The consistencies in this scrutiny would help build a strong banking sector but more radical competitions would create a stronger Banking locale.

Source: ILAPI

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