The financial meltdown which caused the recession of 2008 to 2010 was triggered by shocks in the banking system.
In fact, many economic downturns in the past, such as stock-market crashes and debt defaults had financial-system origins but the current recession which has also hit Ghana is different as it was triggered by a global pandemic which has impacted governmental budgets whiles economies and societies are still struggling with appropriate responses, impacting financial markets adversely.
The outbreak of the COVID-19 pandemic in the country and its resultant contraction of the local economy, not only affected businesses and households on an unprecedented level, but also presented heightened risks to the banking industry.
Risks such as the likely increase in non-performing loans, drop-in deposit mobilisation, and more importantly credit losses due to pandemic-induced repayment challenges by businesses and individuals and its attendant impact on overall asset quality, capital, liquidity and profitability stared at banks in full glare.
Bank of Ghana introduced monetary policy measures in an attempt to contain impact of the pandemic on the economy. At the onset of the pandemic, we realized that, there was generally a scramble for cash by households and even businesses to cover operating costs as a result of revenue shortfalls occasioned by a fall in production levels, especially for the manufacturing sector.
Again, over the course of 2020, we saw a slowdown in credit growth which reflected the pandemic-induced low credit demand and supply conditions and elevated credit risks as also noted by the BoG in its March 2021 Banking Sector Development Report.
With low demand for credit and elevated credit risks coupled with a general slowdown in economic activities, I’m sure it comes as a surprise to many as to how most banks in the country in the year (2020) under review were able to make profit despite the impact of the COVID-19 pandemic on the economy, given the fact that a major share of profit made by banks is dependent on interests charged on credit or loans made to businesses and households. As a matter of fact, published data from Bank of Ghana notes that gross loans grew by only 5.8 percent (to GH¢47.8 billion) in 2020 compared to a growth of 23.8 percent (to GH¢45.2 billion) in 2019.
Let me share with you some of the prudent measures put in place by your number one bank (Standard Chartered Ghana Plc) which enabled us deliver strong financial performance in 2020.
The measures which we took at StanChart, I believe, can serve as good lessons for businesses to apply to ensure survival and continuity through challenging times. We are sharing because we strongly believe that, your survival is vital to our very existence as a bank.
Before I begin, let me state that, the level of support a bank can provide to economic recovery will depend on the bank’s resilience and health. This is always viewed from the institution’s capacity to absorb losses.
During the last ten years, various challenges and shocks which affected the financial sector have seen banks in mature economies build significant and resilient capital buffers in order to operate in what we call the “cushion zone.”
In Ghana, the level and type of support that banks provide to the real economy came under scrutiny by the regulator, given their tighter capital positions. This led to the central bank providing guidelines for dividend declaration and payments to shareholders for 2019 and 2020 financial years even if profits were made, as the sector had barely recovered fully from the financial sector clean-up which was done in 2017 and 2018.
The year 2020, saw some banks go into the “caution zone” and significantly changed their actions by preserving capital, and took decisions about dividends as directed by the regulator, compensation, and cost structures having them all re-examined.
At the onset of the outbreak of the pandemic in the country, Standard Chartered Bank Ghana Plc took clear actions to respond to and manage the crisis. Fundamental to that was early preparation – we quickly established a COVID-19 crisis response structure, developed the likely, reasonable and worst-case scenarios looking at the potential impact on activities. Being part of an international banking group, we took lessons and experiences from other markets where the health crisis began, especially in Asia and performed operational risk assessments considerations and planning for impact of disruptions on critical business functions and also prioritising actions aimed at protecting both client relationships and commercial interests. We updated and rolled out our robust Business Continuity Plans. By the time the country recorded COVID-19 cases, we had simulated lockdowns and our staff understood how we will operate in case of a lockdown.
Our focus was clear, to help our clients in times of uncertainty and to protect the well-being of our staff.
We took immediate action to ensure the well-being and safety of our colleagues once the pandemic got to Ghana by providing support to them and their families to help them navigate the changes. We quickly transitioned about 70 percent of our staff to work from home, providing them with the resources to effectively do so. Our IT and operations team were also very quick and nimble turning around provision of resources including laptops, headsets, data bundles and increasing VPN capacity very quickly thus helping our colleagues to settle in quickly and serve clients remotely.
We turned our attention to focus on our clients, supporting them through the crisis. Through dedication and resilience, our colleagues rallied together to support our clients navigate this challenging period while delivering on our financial goals. Our relationship managers called clients to understand their needs, and we offered solutions unique to the needs of the clients. We designed relief programmes including tenor extensions and interest rate reductions on eligible local currency loans for clients in vulnerable sectors highly impacted by COVID-19 pandemic. Additionally, to encourage clients to keep safe and use digital platforms, we waived fees on selected transactions across our digital channels.
Our resilient team kept in close contact and communication with our stakeholders including clients and staff throughout the period and shared regular updates on operations. Our wealth advisors conducted virtual one on one sessions and webinars for our clients, providing them comprehensive and personalized wealth advice. We enhanced the features on our SC Mobile App to enable clients invest, buy or sell Government securities, bonds and fixed income right from their mobile from the comfort of their homes. We moved in to increase the awareness for our safe, secure and robust digital platforms to get clients to conduct their business using either Sratight2bank for companies or SC Mobile for retail clients. Our colleagues were given the responsibility to dedicate themselves to ensure that customer problems were a priority 24/7.
Through the dedication of our colleagues, we saw an increase in the uptake of our digital channels for various transactions.
These actions led to resilient financial performance in 2020. The Bank posted a profit after tax of GH¢478 million in 2020 up from the GH¢282 million profit recorded for end-December 2019. This represented 70 percent year-on-year profit growth and assets value increment from GH¢7.6 billion to GH¢8 billion during a pandemic which impacted almost every sector of the Ghanaian economy.
Total operating expenses declined by GH¢41 million as the bank’s ‘other expenses’ fell from GH¢119 million to GH¢45 million in 2020. We also increased the value of its ‘other assets’ from GH¢265 million to GH¢445 million in 2020. Net interest income increased from GH¢595 million in 2019 to GH¢641 million end-2020.
Overall, recognizing the age we are in, accepting the new normal and taking the bold step to be part of the digital stage by considering investments in automation is critical for every business as the new normal increased accessibility of the bank’s products and services coupled with strategies implemented to stem the adverse effects of the pandemic on its operations and ensure business continuity. It is also extremely critical to invest in the overall well-being of employees, ensuring you go above and beyond to support them in every area. This will result in overall productivity growth.
Finally, I will encourage you to thoroughly understand your business through stress tests, you will find that you may need to improve the health of your business, starting with rebuilding at least part of your capital buffer. Not only does the buffer provide resilience, in times like the COVID-19 crisis is proving, but markets all over the world have become increasingly aware of the importance of a capital cushion to withstand external shocks.
The author, Kweku Nimfah-Essuman, is the Chief Financial Officer of Standard Chartered Bank Ghana Plc