“Banking holds great promise” - Zenith Bank boss

Mr. Daniel Asiedu, MD/CEO of Zenith Bank Ghana Limited, while outlining some key factors that will enhance the banking industry said it holds greater promise for the economy this year.

He mentioned greater use of technology in the delivery of services to the public, increased collaboration among banks in areas of syndication and information sharing, and introduction of innovative products.

Mr. Asiedu was speaking to the B&FT in an interview on issues relating to the banking industry and the performance of the economy in general.

He said banks can do more to attract the unbanked, explaining that there is need to increase the use of mobile banking to provide basic banking services to people with little access to them, especially those in the rural areas.

“Increased use of mobile banking will help to provide basic financial services to the unbanked, especially those in the rural areas.” This is because, over 21m Ghanaians have mobile phones compared with less than 5m who have access to bank accounts.

“We should also think of increasing our physical presence by opening more branch networks, especially in places where there are few or no banks.”

Mr. Asiedu also shared his perspectives on the much-debated issue of banks’ interest rates and the cost of borrowing for businesses, and argued that there is need to situate the debate in its proper context.

“Critics often cite the continuous decline in the policy rate and inflation as the basis for banks to reduce their interest charges. However, these are just two out of many factors that influence banks’ interest-rate setting.

“There are also issues of the cost of funds, loan loss provision, borrowers risk, administrative overheads, Treasury bill rates, competitors’ actions, and the primary reserves rate. Therefore, in order for banks to be able to meet public expectations there ought to be collaboration among the players, which will help improve upon all these factors,” he said.

Areas that have contributed substantially to economic growth in recent years remain important to the future of the banking industry, he said. Mining, energy, construction, information and communication, aviation as well as agriculture all hold opportunities for expanding banks’ business and growing their operations.

2011 in retrospect

According to the November 2011 Financial Stability Report of the Bank of Ghana, total bank assets grew by 28.9% in August last year compared with 29.0% growth in the same period of 2010.

Net loans and advances increased by 14% to GH¢7.11bn in August 2011 over the figure for August 2010.

Non Performing Loans (NPL) to capital ratio improved to 12.1% as at August 2011 from 18.5% the year before, helped in part by government’s settlement of contractors’ bills.

Deposit liabilities continue to be the main source of banks’ funding, according to the report. It stood at GH¢13.9bn as at August 2011 compared with GH¢9.91bn in August 2010. This represents a 39.2% increase.

The Capital Adequacy Ratio (CAR) as at August 2011 stood at 15.4% -- well above the statutory threshold of 10%, indicating that banks exposures remain well-contained. The CAR was 19.2% in the same period last year.

For the economy in general, Mr. Asiedu said the growth outturn was quite robust, coming at a projected 13.6% outturn compared with 7.7% in 2010. This increased the size of the economy from approximately US$29.4bn (GH¢43.1bn) to US$33.5bn (GH¢53.6bn)

The performance was mainly on the account of impressive growth in the industry sector and subsectors such as oil, cocoa, mining, construction and information and communication.

The financial intermediary sub-sector to which the banking industry belongs grew by 1%, against a budget of 7%.

Stable prices as indicated by the year’s inflation average of 8.73% was good for business planning, Mr. Asiedu pointed out, adding that it is necessary to maintain the stability despite the pressures associated with an election year.

Prospects for 2012

The appreciable GDP growth projection of 9% for 2012 (albeit lower than the 2011 projected outturn of 13.6%) is encouraging, and the assurances about sustaining macroeconomic stability amidst the challenges of an election year are positive.

“The injection of the US$3bn CDB loan from China could stimulate the economy during the year, and bring more business to the industry and the clients that we serve,” he concluded.