No More New Banks

Government says it has put a hold on the issuance of licences to new banks in the country.

The Vice President, John Dramani Mahama who made the disclosure during the bi-annual dialogue meeting between the Presidency and the private sector, explained that “Ghana is a small market and must look at ways of strengthening the banks here rather than opening the market up for more competition.”

The private sector, represented by the Private Enterprise Foundation (PEF), is in partnership with the government to energise the country’s economy. Discussion between the two partners bordered on interest rates, pricing of petroleum products and utility services and improvements in the tax systems.

Since 2004, nine (9) banks have come in from the sub-region, Asia and North Africa. These are Fidelity Bank, GT Bank, Access, Zenith, UBA, Intercontinental, Energy Bank, Bank of Baroda and Sahel Bank. Trends during the last two decades have witnessed the number of commercial and investment banks operating in the country increase from eleven (11) in 1990 to twenty-seven (27) this year.

According to data from Bank of Ghana, the bank’s Return on Assets (ROA) went up marginally to 2.7 percent by the end of December 2010, from 2.1 percent in 2009. Also, Return on Equity (ROE) increased to 28.6 percent by the end of December 2010 from 23.6 percent in 2009.

Industry’s income report shows banks benefitted from the marked improvement in general macro-economic conditions as interest expenses contracted by 5.3%, significantly lower than the increase of 78.2% recorded in 2009.

Growth in income from fees and commissions was 18.8%, compared with 20.8% in the prior year. Other incomes however fell by 24.6%, compared with growth of 26.3% a year earlier. The Vice President agreed with the private sector that mergers are a way of addressing the high interest rates in the country, and listing on the Ghana Stock Exchange (GSE) would promote mergers.

He also noted that when the Credit Reference Bureau becomes fully operational, the country is likely to see interest rates go further down. “This will allow banks to fully appraise a customer before granting out loans,” he added.

The issue of high interest rates in the country has generated considerable public debate recently, largely because the gains of macro stability have not translated into a significant decline in lending rates by the commercial banks in the country.

For several years, lending rates in the country have been high - ranging from 48 percent in 1996, 38.5 percent in 2002 and currently about 30 percent to 35 percent depending on the sector in which the borrower operates. In competitor African countries, interest rates are relatively low and in many instance are below 10 percent.

According to the last business barometer survey conducted by the Association of Ghana Industries (AGI), the issue of high lending rates was identified as the number-one constraint to doing business in the country. The situation has limited the ability of the private sector to source funding for working capital or invest in expansion and retooling of plants and machinery to be competitive in the market place.

The Vice President also mentioned that the Export Development Investment Fund (EDIF) Act is being amended to cater for both exports and agricultural financing. He also stated that government is considering a policy to review the importation of used vehicles into the country. He tasked PEF to present a proposal on how best to get EDIF to give out loans to the private sector at attractive rates.

On the issue of revenue collection, John Mahama noted that the new system where all the revenue institutions are under the Ghana Revenue Authority will help address the issue of a large majority of people refusing to file tax returns. He pointed out that government is concerned about the tax situation in the country but does not believe that the tax burden should be borne by a few individuals and companies.

For their part, the Governing Council of PEF - led by Asare Akuffo, President, and Osei Boeh Ocansey, Director-General - urged government to continue its macro-economic stability to ensure that the economy continues to expand and grow. On pricing and service delivery of utility services, PEF recommended that the private sector should be allowed to participate in the production and distribution of utility services through public private partnerships.

“A start has been made in electricity supplies; this should be extended to water also. The council believes this will ultimately lead to a reduction in prices for the average consumer and to much better services delivery.”