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Business News of Sunday, 30 November 2003

Source: Public Agenda

Banking in Ghana is for the rich - Lecturer

A Ghanaian Economist, Dr. Augustine Fitzgerald Gockel says the problem with the economy is that most Ghanaians today cannot access banking services because the banks are strategically closing down rural branches and are raising minimum operational balances for their own profit interests.

Banks are now targeting the more affluent groups in Ghana and thereby marginalizing the micro and small-scale industries and the poor in society most of whom do not receive even the minimum deposit the banks are demanding before opening an account.

Even though the minimum wage of Ghanaian workers is less than 10,000 cedis (9,200 cedis) some banks are demanding between one to two million cedis as minimum deposit.

According to Dr. Gockel, the major players, Standard Chartered Bank, Barclays Bank, SSB Bank, and the Ghana Commercial Bank (GCB) have closed down many of their branches outside the major urban areas.

“Between1989 and 1996, SSB Bank closed down 20 of its branches while twelve more branches were closed down by the same bank between 1989 and 1990,” Gockel said.

Barclays Bank which had 42 branches in 1988 closed down 16 branches for purposes of cost reduction and not loss making. Also GCB which had 150 branches in 1998 closed down 16 of them.

Gockel who is also a lecturer at the Department of Economics University of Ghana complained that the newly established banks are not doing any better. He was contributing to the Institute of Statistical Social and Economic Research (ISSER) and the Merchant Bank Annual Economic lectures in Accra last week.

“None of the banks that was established after 1990 has a branch outside Accra , Kumasi or Takoradi. Since the new banks are in the fore of technological innovations taking place in Ghana’s banking industry, they are not likely to open branches in the rural areas in the near future.”

As a result of this problem, although the number of banks has increased from 11 in 1990 to 17 at the end of 2002, total branch network has declined.

“ The population per bank branch has decreased so that there is now less access to bank by a greater number of Ghanaians.”

The Ghana Government has passed various laws to demystify issues of finance but it appears the enactment of these laws has not aided much understanding and operations of the sector .

“The experience of Financial liberalization in Ghana so far has raised questions about the capacity of Ghanaian banks to reconcile their micro-economic objective of private profitability with the nation’s macro-ecomomic objectives of growth and development, Gockel. The assets structure of banks show that loanable funds are largely invested in riskless government papers, and short term end of market for commercial purposes.”

The economic lecturer said it is important for banks to engage in product competition and not soft auction of Treasury Bills. The banks should not be allowed to invest in Treasury Bills to the detriment of services to the public.

“So far as banks have access to Treasury Bills, they will not lend to private sector groups which they consider very risky areas of investment.” He said once they do not have access to Treasury Bills, the banks would be forced to make innovations to meet the challenges of financing the real sector of the economy.

Again Gockel said the financial services depict a situation where distinction among commercial, merchant and developmental banking business are not observed.

“All the banks are now virtually performing commercial and developmental banking business in addition to merchant banking,” he said adding, “The new banks are one stop shop banks for financial supermarkets offering virtually all types of financial services under one roof.”

These are a combination of deposits taking, and credit making with the business of trading in securities as well as their ownership of other investments in other banks and non bank financial institutions.

For instance ECOBANK Gockel has as subsidiaries ECOBANK Stockbrokers Limited and EBG Investment Management limited to perform specialized services, Trust Bank describes itself as a Universal Bank that provides corporate finance and treasury services for corporate bodies and government agencies.

“The Agricultural Development Bank’s Western Union Money Transfer and SSB’s Money Gram have transcended development banking practices, whilst ECOBANK’s and Merchant Banks attempt to induce the general public to use them for payment of utility bills a re anything but merchant banking. The National Investment Bank ‘s aggressive loan for school fees is both retail banking and insurance in practice.”

Similarly, Standard Chartered bank and Barclays Bank also have products that are of an insurance character.

“Hence after the 1998 financial reforms, banks are now into all financial services including insurance, leasing and capital market activities.

Dr. Gockel said although such banking practices have advantages, combination of commercial banking with security trading could also create conflicts of interest and could use insider information and to manipulate or at least manage stock market prices

He said banks should go beyond the delivery of financial services. They should take care of factors that militate against small scale industries and enterprises.

The Acting Director of Research of the Bank of Ghana Dr. Ernest Addison said Government is gradually improving the financial sector. One of the measures is the massive reduction in the lending rates . Treasury Bills have lost much value and for that reason of very little interest to banks.

“With improvements in the macroeconomic environment, all these things will be minimized.” he said. “The banks will have to find ways of investing their monies.”

Speaking on the need for universal banking in Ghana, Dr. Addison said: “The kind of banks the country has and their capital cannot move the economy forward. If you go to any of the banks and ask for a one million dollar guarantee, I don’t think any of them could give you,” he said. Universal Banking according to him will boost the capital rate of the banking industry, and help offer a wide range of products and services with bigger investment financing.

The Bank of Ghana is introducing the concept of Universal banking in Ghana which it said is being driven by Market policy initiative.

“There is evidence that Universal banking can lead to a reduction in the cost of borrowing and if applied properly, should help reduce corporate financing costs, encourage consolidation in the Ghanaian financial industry and lead to the creation of a banking sector that is able to impact on development.”