The banking sector in Ghana has witnessed significant growth in the past decade with respect to governance, capitalization, and competition.
The industry evolved from a few indigenous and the traditional high street banks totaling 18 in 2002 to 34 banks in 2017.
From hindsight, one could argue that the discovery of oil in commercial quantities coupled with the low minimum capital requirement for commercial banks precipitated and sustained this growth.
Not surprisingly, as at 31 December 2018, the number of banks had reduced to 23 due to the inability of some of them to meet the increase in the minimum capital requirement by the Bank of Ghana from GH¢120 million to GH¢400 million.
Poor corporate governance, increasing competition and lax regulatory oversight had rendered most of the defunct banks already insolvent even before the central bank announced the increase in the minimum capital requirement. It is expected that the current number will remain until industry performance expectations by stakeholders compel some mergers and acquisitions, exits and new entrants.
Given the newly introduced reforms by the Bank of Ghana, which has introduced minimum qualification, experience requirements and term limits for banks’ board and key management positions, the performance of banks is expected to improve on the back of strengthened banking industry.
These reforms are expected to cure the situation in which board members and chief executive officers (CEO) of banks assumed a position of invincibility in their institutions due to the absence of limitation on their term of office. This was especially so in situations where ownership was not so distinct from management.
The new corporate governance and the Fit and Proper reforms by Bank of Ghana adopt a preventive instead of a reactive approach which is very commendable.
By ensuring that people who are appointed as key management staff of banks have the necessary experience, qualification and the level of integrity required, the Central Bank is ensuring the safety of the industry as well as holding key management members responsible and accountable for decisions taken in the day-to-day execution of their duties.
It is the expectation of all stakeholders and the ordinary citizen that the Central Bank will be consistent and persistent in the enforcement of these reforms to ensure that the current stability which is a result of a very expensive exercise on the account of the taxpayer is sustained.
There has been significant liquidity injection in the Banking industry in Ghana in the months leading to 31 December 2018 and thereafter. The 23 banks currently in existence raised various amounts to meet the increased capital requirement. The government in bailing out depositors of the defunct banks had to and it is still injecting liquidity into the industry to ensure that depositors are able to access their funds when needed.
The industry, therefore, has the liquidity to support its’ core mandate of granting loans to support businesses and individuals to grow and prosper. The stability created has positioned the players to take advantage of the growing upstream oil and gas industry, finance the industrialization agenda of the country, and collaborate to underwrite big ticket transactions while effectively managing risk.
The balance sheet constraint, although still a challenge, will cease to be a limiting factor if banks collaborate more by syndicating big-ticket transactions.
The future of banking especially for corporate and investment banking as well as commercial banking post the Bank of Ghana reforms is therefore full of prospects. The emergence of new industries and the resurrection of industries in the manufacturing, mining, aviation and rail transportation sectors present untapped markets for corporate and investment banking in Ghana to fund and diversify their loan portfolio which is concentrated on Government and quasi-government entities.
About The Author
Joanna Agyapong-Agyare is a seasoned corporate and investment banker with 14 years’ experience ranging from Banking Operations to Corporate and Investment Banking. Joanna has served as the Head of Corporate and Project Finance and has extensive experience in oil and gas financing. She has originated and successfully closed transactions in key sectors such as energy, infrastructure and commodities in Ghana.