Banks must continue to collaborate amidst competition

Indeed, the overall impact of Ghana`s financial sector in the real economy cannot be overemphasised; it has ensured sustainable growth over the last century. Banks like Standard Chartered and Barclays which have been in Ghana for over 100 years have supported successive governments through the changing scenes of the economy. In the midst of all these changes and digital disruptions, a financial institution cannot afford to work in a silo but rather has to embrace greater collaboration with its peers.

With all the success stories within the banking industry and impact on the economy, the reality is that many developing countries, especially in sub-Saharan Africa, have not adequately developed their financial systems as these have not been a priority, and therefore not placed at the top of their development and growth agendas.

In Ghana, the financial statements published in the first quarter of 2019 by some 18 banks showed that the banking industry remains profitable. For example, industry Profit before Tax (PBT) stood at GH¢1.18bn with total revenue of GH¢2.6bn (2018: GH¢2.1bn) representing a 26% growth year on year. Growth in customer loans and advances remained flat at GH¢31.8bn, with Ecobank maintaining industry market share of 14.3%.

Again, Customer deposits by these banks saw a 5% year on year growth to GH¢71.7m (2018: GH¢68.3bn). GCB Bank maintained its position as the bank with biggest customer deposits at a market position of 11.3%, followed by Ecobank at 10.5%. With banks taking a tight credit stance on customer loans and advances, this also impacted the Total Assets (TA) growth. TA grew marginally by 1% to GH¢108.9bn. Banks like Stanbic and Fidelity grew their Assets book by 23% and 18% respectively. Following the recapitalisation exercise by the Bank of Ghana, all the banks are well capitalised and able to underwrite big ticket transactions.

Observing the sterling performances of these banks, however, there is still need for them to collaborate to increase their profitability, underwrite bigger transactions and develop key sectors of the economy which are capital intensive. One such collaboration that comes to mind is that which involved the Ghana Education Trust Fund (GETfund) and six big banks: namely Standard Chartered Bank Ghana Limited, Ecobank Ghana Limited, Stanbic Bank Ghana Limited, Barclays Bank Ghana Limited, Fidelity Bank Ghana Limited and GCB Bank Ghana – who were seeking the opportunity to raise the total amount or part of the GH¢2.3bn loan to support school education and other educational infrastructure development.

Even though – for reasons best known to themselves – the GETFund and Ministry of Finance (MoF) awarded the mandate to other competitor banks, the rationale and the steps taken by these six strong banks were in the right direction. Through their Single Borrowing Limits (SBLs), the seven-year tenor transaction could have been raised from their respective balance sheets and/or through a bond programme at a very reasonable pricing.

Another instance where a great deal of collaboration took place was when some Foreign/International Banks (Lead Managers) and Local Banks (Co-Managers) supported the Ministry of Finance to raise US$3bn from the international capital market, which was oversubscribed by seven-fold. Such collaborations are good, because they enhance transfer of knowledge and help build local capacity and benchmark strength to develop the local markets.

So, why must banks collaborate?

Sometimes, due to shareholders’ expectations on a particular bank to achieve high Return on Equity (ROE), banks which come across such transactions and are not able to execute shy-away from such deals with competitor banks. It is important for banks to be a risk participant (Sell down) on key transactions. By sharing the risk on transactions, in the event of defaults, Loss Given Defaults (LGDs) would be minimised. For example, in 2015/16, the inability one of Ghana’s biggest commodity trading companies to meet its financial obligations nearly crippled the operations of about twenty-six local banks in the country.

Finatrade Group was indebted to the various banks to the tune of about GH¢1bn – almost half of the GH¢2.6bn stated capital of the entire banking industry, which boasted nearly GH¢47bn in total assets at that time. A lot of banks took a hit and had a lot of impairments on their books. This, I believe, occurred because the banks were not ‘talking to each other’ and were working in silos, only concentrating on their core businesses without sharing the relevant information.

Again, in the midst of all the tightened regulations from regulators around the world, including those of the Bank of Ghana, it`s imperative for banks to collaborate on areas of mutual interest. Are banks ready to integrate their platforms with other banks’ systems? This is a decade-long question yet to be answered. Moreover, in the world of Google, Apple, Facebook and Amazon, consumers expect flexible, real-time solutions anytime, anywhere and on any device.

To compete effectively, banks must evolve their services and respond to customer expectations in the same manner as these fore-runners of the platform economy. Banks are increasingly recognising that they cannot do this on their own. At a time when competition is growing in the Banking industry, collaboration must become an essential part of every bank’s innovation strategy.

Banks can also collaborate in the area of data analytics and exchange. There are few institutions in Ghana with customer levels as high as these banks. However, the big question is: how are banks leveraging on such big data analytics to improve customer service, experience and data mining? With the exception of Guaranty Trust (GT) Bank, which maintained the lowest Non-Performing Loans (NPLs) of 4%, average industry NPL for 2018 stood around 18-19%. In my opinion, NPL`s remains high on the market because clients go for multiple loans at various institutions. This, among many other things, leads to high rate of default and enormous provisions and impairment recognition under International Financial Reporting Standards (IFRS) 9 reporting standards.

The incidence of price-wars among banks on various transactions, leading to lost deals, would also be minimised. If banks accept the challenge and work toward a common goal that would be of mutual interest to themselves, Ghana would see the next level of development. This is not rocket-science. In developed economies like the United Kingdom (UK), the kind of system run there is a function of how players in the financial system have embraced each other – so that economic growth is driven by a collaborative financial industry.

All over the world, banks are saddled with cybersecurity issues. Banks who haven’t tightened up their security systems are endangered by such external shocks. All banks have a role to play in fighting against cybercrime. There should be a common understanding that the foundation for the very existence of these banks lies in the deposits customers have entrusted to them. It is therefore imperative that collectively, banks invest in technology and upgrade their security controls.

For example, banks which are not International Organisation for Standardisation (ISO)-certified must push to receive such certifications and maintain trust in the financial system. Banks must continue funding the likes of the National Banking College to continue training and education to ensure that commemorations such as Cybersecurity and Awareness Month don’t become just talk-shops, but rather fulfilled seminars with impactful outcomes.

Furthermore, the risks involved in corresponding services either through Trade Services or Cash Management (Vostro or Nostro accounts) continue to be heightened. Most offshore banks are shying away from United States dollar, Great Britain pound and euro clearing services from developing countries. This is due to the fact that some banks in Ghana have weak Compliance frameworks, Sanctions screening, Anti-money Laundering and non-conformance to various international operating standards, such as Dodd Frank, FATCA and Wolfsburg etc. In as much as I admit that some foreign banks have met some of these standards, amidst the competition, they must provide thought-leadership aimed at building benchmark strength.

In summary, the competition in Ghana will always get keener with smaller banks trying to improve their bottom-line to catch up with so-called bigger banks. However, it is equally important to acknowledge the importance of collaboration in various spheres of doing business. Economic growth is a function of well-developed, well-capitalised and stronger financial systems. Banks should avoid working in silos and begin the bigger conversations of how to support each other.