Feature Article of Monday, 30 April 2007

Columnist: George M. & Gloria K.Bob-Milliar

Developments in the Ghanaian Banking Sector


The past few years have seen a phenomenal growth in the Ghanaian banking sector. Ghana’s financial sector according to the Bank of Ghana, hereafter (BoG) is well capitalised, very liquid, profitable and recording strong asset growth. The total banking system assets at the end of October 2006 were ¢48,353.0 billion, representing an annual growth of 35.5 per cent, as against 16.6 per cent as of the end of October 2005(Daily Graphic, December 19, 2006).The banking sector has emerged from severe financial and reputational damage resulting from economic recession and government debt in the 1980s and 90s, when Ghanaian banks and other financial institutions stopped lending to the private sector. The banking sector has seen major capital injection partly because of the political stability, attainment of micro and macro economic stability and the government’s desire to make Ghana the “financial hub” of the Sub-region. The Central bank has promoted the enforcement of statutory requirements, more stringent supervision and increasing capital requirements. The Bank of Ghana has licensed twenty three banks to operate in the country. In addition to the 23 banks, the sector also comprises a range of non-bank financial institutions, including several community banks established to mobilise rural savings. The ARB Apex Bank is the umbrella bank for Rural Community Banks and supervises 123 such banks throughout Ghana. A distinguishing feature of the sector is the level of ownership by the private sector, directly or through the capital market when compared with the level of state ownership seen in the financial sector in other African countries. Further, a large number of these new banks are owned and managed by Africans, and the sector boasts a number of highly skilled and experienced bankers. The new banks are trying to revolutionise access to banking services, denied the population by the imperialist banks. Several banks have already made determined effort to roll out the use of internet banking, smartcard technology, mobile phone banking and the use of biometric technology to cover all their operation areas.

The Bank of Ghana has increasingly exercised its power as a regulator in line with internationally accepted norms, and has implemented a series of tough supervisory measures. For instance, the (BoG) ordered members of the Board of Directors of the Amenfiman Rural Bank who received ¢2.8m as Christmas gift to refund the amount with interest at current commercial rate prevailing at the bank. The Central Bank has also directed that amounts given to retired directors and a director who has resigned be retrieved (GNA, April 12, 2007).More recently, there is growing introduction of new products by the banks onto the market. Hitherto, banks that served the interest of the few elite and concentrated on investment banking, now facing an increasing competition from these new banks are now opening their doors to the poor in the Ghanaian society. The new banks are now serving all sectors of the Ghanaian society and not an elite few. This article looks at the new developments in the financial sector in Ghana.

The banking sector in the past

In the past it used to be very frustrating transacting business in Ghanaian banks particularly if one was not privileged to be a member of one of the few elite banks operating in the country. It was a common thing to see very long and winding queues extending several kilometres outside the banking halls of especially the Ghana Commercial Bank (GCB), the Social Security Bank (now SG-SSB) and Agricultural Development Bank (ADB). In Ghana as in most parts of Africa, public sector workers receive their pay usually at the end of the month. And with their low bank charges and also been state owned GCB, SSB and ADB were usually very crowded at the end of every month. For example, on the K.N.U.S.T campus, at the Commercial Area, GCB is next-door to Barclays bank, whereas long queues used to the norm outside the banking hall of the former, the latter’s banking hall was (is still) less crowded. The reason is simple. For decades, the banking sector was dominated by Barclays and Standard Chartered banks. Barclays Bank (known as the Colonial Bank) in February of this year celebrated ninety years of its operations in Ghana and Standard Chartered bank (known as the Bank of British West Africa) has been operating in Ghana since 1896. These imperialists’ banks exploited Ghanaians by charging exorbitant bank charges for every little service rendered. For example, in 2003 the minimum deposit in a current account acceptable to these two foreign banks was ¢1million. How many Ghanaians could afford to lodge ¢1million in a current bank account considering the general low incomes public sector worker earn? These banks served the interest of the few elite and the expatriate community. The irony is that these imperialist banks have now adjusted to the new rhythm in the financial sector. Their claim to been leaders in the financial sector is seriously threaten. Barclays and Standard Chartered banks are now opening their doors to Ghanaians within the low income group. This group of Ghanaians have been neglected by these banks for far too long. The low income group did not matter because with the few elites and other investments, these banks still declared fabulous profits annually.

On the other side of the coin were the emerging state owned financial institutions. These banks served the interest of most working class Ghanaians. Most have branches throughout the length and breadth of Ghana. With its 133 branches, GCB is very popular among low income Ghanaians. In most economies, the financial sector plays a central role in enhancing growth and development. For almost a century, the Ghanaian banking sector was dominated by foreign financial institutions. Western businesses usually claim that the cost in doing business in Africa is too great, yet most declare fabulous profits every year. The “quick return” mentality practised by western financial institutions in Africa in order to satisfy their shareholders, means they usually looked for investments which provide the highest rate of return. This explains the neglect of a larger segment of the Ghanaian society by ‘old’ Barclays and Standchart. Again, some financial institutions were unwilling to commit to long term financing of development of projects in African countries where there is perceived high political risk. Perhaps, all these are about to end.

The New Order

The Ghanaian banking sector is now very vibrant and modern. According to the second Deputy Governor of BoG,Dr.Mahamadu Bawumia, bank branches in Ghana increased by 11.3 per cent from 309 to 344 between 2002 and 2004 with 81 new branches springing up from 2004 and 2006 indicating an increase of 23.5 per cent. Most banks now employ cutting edge technologies to roll out their products to their Ghanaian customers. Banking halls are housed in ultra modern buildings, staffed with well trained smart looking ladies and gentlemen. Ghanaians living in the big commercial towns are now spoilt for choice. Twenty three banks are chasing the about 10 per cent of the bankable segment of the population. Nigerian banks are well represented in the new banking sector in Ghana. Nigeria has one of the largest banking sectors in Africa with over eighty banks in operation. And the sector is one of the most competitive among emerging market countries and it known for its innovation and resilience. According to the African Business Magazine, Nigerian banks make up five of the top twenty banks in Sub-Saharan Africa by capital. Against this brief background, the entry of the number one bank in Africa, Standard Bank of South Africa (Stanbic Bank Ghana) and the Nigerian banks – Guaranty Trust Bank, Zenith Bank, Intercontinental Bank, United Bank for Africa, etc – into the Ghanaian financial sector should be welcome.

Because of the very fierce but healthy competition in the banking sector, daily newspapers are adorned with catchy adverts of re-branded or new products all in an attempt to lure new customers to their products and services. Many banks in the commercial centres now work half day on Saturdays, thus making it possible for busy workers to access banking services at the weekend.The Home Finance Company (HFC Bank) last year introduced the “Homesave Account”, a product which offers prospective homeowners the opportunity to save, in return for a down payment on a new house. In addition, HFC bank also grants long-term mortgage loan to its customers. This means that in the new Ghana one does not need to “burger” (no need to travel to Germany, UK, Italy, Canada or US) before one can own their dream home. There is an adage that says that “catch them young” and true to this adage CAL Bank invited tertiary students to a job fair. All participants were promised “zero accounts opened at CAL Bank, free ATM cards and SMS sign up”.Barclays Bank has just introduced a new product called "Aba Pa" savings and current accounts to encourage more Ghanaians to access bank services. The product advert in the Daily Graphic newspaper read like this; “Aba Pa you can also bank with us”. The product, which targets the employed with low-income levels below ¢500,000 and the agricultural sector, offers customers low initial deposits, transaction costs and free bank statements to grow their savings balance on a graduated scale. "Aba Pa", which required a minimum opening balance of ¢40,000, would also provide funeral insurance cover, a Visa Electronic Debit card and access to loans for all its customers (GNA, April 16,2007). GCB has a product whereby money can be deposited at any of its branches and received on the same day anywhere in Ghana. No need from businessmen and women to carry huge sums of cash on business trips. ECOBANK’s Auto Leasing promotion says that “walks in with an invoice for a new car from any car dealer of your choice and drive your dream car away at the Ecobank base rate” (Daily Graphic, April 17, 2007).Stanbic bank is also offering car loans, Standard Chartered, ADB and others are all introducing new products for the benefit of Ghanaians. The most significant thing is that whereas African politicians have failed in integrating African economies on the political front, the financial sector is moving closer to full integration. The banks are leading in the economic integration of Africa. Most of these banks are Pan-African in nature with branches in several other African states.


Notwithstanding this phenomenal growth in the financial sector, interest rates are still too high for the average Ghanaian worker and a great majority of Ghanaians are unbanked. High interest rates deter people from borrowing from the banks. The role of the global financial institutions is changing and so are the banks operating in Ghana. The banking sector should explore ways in which they can take advantage of the government’s policy of making the “private sector the engine of growth” to market their products. Further, there should be unwavering commitment to domestic resources mobilisation.

A concerted effort must be made to reverse the declining trends in the levels of savings. Over 75 per cent of total currency issued by the BoG is in the homes of citizens. A large pool of funds therefore circulates outside the formal financial system. Many Ghanaians still refer to keep disposable per capita income under beds, in metal boxes, or buried underground. Fire outbreak at Ghanaian markets are too numerous to list. The latest incident happened on March 15th at the Takoradi Market popularly referred to as the Market Circle. Billions of cedis (cash) were consumed in the fire. Savings culture is critically lacking in the Ghanaian society partly because of our history of military rule and sheer ignorance. The BoG should begin to educate the population of the benefits associated with depositing monies with the banks. The “on-site cash collection” introduced by the BoG should be intensified to achieve it intended objective. Crime is a particular concern to many Ghanaians, and carrying cash is viewed as a high risk. The re-denomination of the cedis and the development of appropriate technology solutions such as cash cards, mobile phone banking, and fingerprinting are necessary if access to financial markets for the poor is to be improved. In the past retail financial services focus on the needs of the relatively few wealthy customers. It is most unfortunate that banking had become a preserve of a few, no wonder that only 10 per cent of the Ghanaian population have bank accounts. Even though some people have expressed concerns about these new banks operating in Ghana, such concerns are unfounded; the near monopoly enjoyed by some banks in the past is now over. Besides, majority of the shareholders of these banks are Africans and instead repatriating huge profits as in the case of Barclays and Standard Chartered banks to their British shareholders, this time around the profits (if there are any) will stay in Africa for the over all development of the African continent. On the whole, the entry into the financial sector by these new African banks has stimulated the economic growth of the country by providing employment to many people. Above all there is a healthy competition and any bank that wobbles will definitely loose out. The once exploited and abused Ghanaian consumer is now the beneficiary of these new developments in the financial sector.

Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.