You are here: HomeNews2020 02 26Article 878047

Business News of Wednesday, 26 February 2020

Source: laudbusiness.com

Indigenous ownership of banks key to Ghana’s economy – IEA


Click to read all about coronavirus →

A Senior Economist at the Institute of Economic Affairs, Dr. John K. Kwakye, has lamented the collapse of locally owned banks in Ghana.

He said Ghanaian ownership of banks is key to the economy, therefore, it was unfortunate that these banks went under during the recapitalization exercise undertaken by the Bank of Ghana.

He said at a press conference in Accra on Tuesday, Dr Kwakye said: “Most of the banks that have collapsed were indigenous Ghanaian banks.

“And the point I am making is that, with their collapse, it looks like the indigenous ownership of the banking industry has decreased.

“In fact, this is unfortunate since indigenous ownership is key to the overall health of the economy.”

Dr. Kwakye, further noted that the negative effect of the clean-up has led to questions being raised about whether a different approach could not have been adopted in the reforms.

“This is a question that comes up. People have said, couldn’t the BoG and government have approached the reforms differently? The idea of establishing a Deposit Insurance Scheme has been mooted and it is not clear whether the scheme is fully functional, otherwise, they could have fallen on those funds to repay depositors,” he stated.

Nine domestic banks including the UT and Capital banks collapsed during the cleanup exercise in the banking sector.

The others were Beige, Royal Bank, Construction Bank, Sovereign Bank, and uniBank were collapsed and merged to form the Consolidated Bank. Two other banks, Heritage and Premium banks, also had their licenses revoked and added to the Consolidated Bank.

Meanwhile, the BoG has said the banking sector remains sound, well capitalised and liquid after the recapitalization.

Ghana’s banking industry registered a growth of 9.4 percent for the first four months of this year, compared with 0.7 percent growth the same period last year, the latest Banking Report from the Bank of Ghana indicates.

The industry’s net profit after tax in monetary terms increased from GH¢675.5 million in April 2016 to GH¢739.3 million in April 2017.

Income before tax also registered an annual growth of 13.7 percent for the period ending April 2017, from a modest growth of 1.4 percent in April 2016.

According to the report, the two key profitability indicators, namely, return on equity (ROE) and return on assets (ROA) declined during the period under review. The banking industry’s ROA decreased from 4.7 percent in April 2016 to 4.0 percent in April 2017, while the ROE declined from 22.0 percent to 19.3 percent over the same review period.

The regulator is, however, expressing concerns about the quality of lending which it says has weakened over the last few years with non-performing loans reaching 21.7 per cent in May 2017.

“Following the Asset Quality Review (AQR), the BoG has been implementing a roadmap for recapitalization which required the few banks which did not meet the minimum capital adequacy ratio to submit capital restoration plans. The implementation of the roadmap is on course”, its Monetary Policy Committee report suggests.

The report added that most of these banks have met the minimum requirement and a few are on course to doing so within the stipulated timeframe.

On loans, the Central Bank said the credit conditions survey in June 2017, showed some tightening of credit conditions for enterprises and households as banks begin to clean their books and reclassify their loan portfolios following the industry-wide comprehensive asset quality review exercise that ended in December 2016.

On a year-on-year basis, bank credit to the private sector and public institutions increased by GH¢5.1 billion (16.4 percent year-on-year growth) compared with GH¢2.5 billion (11.3 percent year-on-year growth) for the same period in 2016. Of the total credit flow, the private sector accounted for 86.5 percent.

In real terms, credit to the private sector rose by 3.2 percent in May 2017, against 7.4 percent contraction over the same period last year.

On composition of banks' interest, interest income from loans remained the major source of income for the banking industry for the period ending April 2017. Interest income from loans constituted 43.6 percent of total income in April 2017 compared with 50.2 percent in April 2016.

Send your news stories to and via WhatsApp on +233 55 2699 625.

Join our Newsletter