Indeed, the overall impact of Ghana`s financial sector in the real economy cannot be overemphasized; it has ensured sustainable growth over the last century.
Banks like Standard Chartered and Barclays who 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 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 Ghs1.18bn with total revenue of Ghs2.6bn (2018: Ghs2.1bn) representing a 26% growth year on year. Growth in customer loans and advances remained flat at Ghs31.8bn with Ecobank maintaining industry market share of 14.3%. Again, Customer deposits by these banks saw a 5% year on year growth to Ghs71.7m (2018: Ghs68.3bn). GCB Bank maintained its position as the bank with the biggest customer deposits with 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 Asset (TA) growth. TA grew marginally by 1% to Ghs108.9bn. Banks like Stanbic and Fidelity grew their Assets book by 23% and 18% respectively. Following the re-capitalization exercise by the Bank of Ghana, all the banks are well capitalized and able to underwrite big-ticket transactions.
Observing the sterling performances of these banks, however, there is still the 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 was 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 for the opportunity to raise total amount or part of the Ghs2.3bn loan to support school education and other educational infrastructure development.
Even though for best reasons known to GETFund and Ministry of Finance (MOF) who 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 very reasonable pricing.
Another instance where a great deal of collaboration took place was when some Foreign Banks/International (Lead Managers) and Local Banks (Co-Managers) supported the Ministry of Finance to raise $3bn from the international capital market which was oversubscribed by seven times. Such collaborations are good because they enhance the transfer of knowledge; help built 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 who come across such transactions and are not able to execute, shy off 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 minimized. 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 Ghs1bn which was almost half of the Ghs2.6bn stated capital of the entire banking industry, which boasts nearly Ghs47bn in total assets as 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 recognizing that they cannot do this on their own. At a time where competition is growing in the Banking industry, collaboration must become an essential part of the innovation strategy of every bank.
Banks can also collaborate in the area of data analytics and exchange. There are few institutions in Ghana with customer levels as these Banks. However, the big questions are how banks are leveraging on such big data analytics to improve customer service, experience and data mining. With the exception of Guaranty Trust (GT) Bank who maintained the lowest Non-Performing Loans (NPLs) of 4%, the 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 a high rate of default and enormous provisions and impairment recognition under International Financial Reporting Standards (IFRS) 9 reporting standards.
The incidents of price wars among banks on various transactions leading to lost deals would also be minimized. If Banks accept the challenge and work towards 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 is a function of how the players in the financial system have embraced each other; that economic growth is driven by the collaborated 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 cybersecurity. There should be a common understanding that the foundation of the very existence of these banks lie in the deposits that customers have entrusted to them. It is therefore imperative that collectively, banks invest in technology and upgrade their security controls. For example, banks who are not International Organization for Standardization (ISO) certified push to receive such certifications and maintain the trust in the financial system. Banks must continue to fund the likes of the National Banking College to continue the training and education to ensure that commemorations such as cyber security and awareness month doesn’t become just a talk shop 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 the 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 capitalized and stronger financial systems.
Banks should avoid working in silos and begin the bigger conversations on how to support each other.
Disclaimer: The views expressed are personal views and doesn’t represent that of the banks or the institution the writer work for.
About the writer
Carl Odame-Gyenti is a third year PhD (Financial Management) candidate, a Finance and Telecom enthusiast, managing local and global Investors, Intermediaries, Non-Bank Financial and Financial Institution relationships with an international bank in Ghana. Contact: Carl.firstname.lastname@example.org, Cell: +233-204-811-911