AFTER THE RISE

GHANA’S BANKING LANDSCAPE

AFTER THE CAPITALISATION REFORM
 AFTER THE RISE
GHANA’S BANKING
LANDSCAPE
AFTER THE
CAPITALISATION
CONTENTS REFORM

Co-Founder, CEO
Rob Withagen

Strong Fundamentals: Government aims to

3 build on strengths and address weaknesses
Co-Founder, COO
Greg Cohen

Content Director
Jennie Forcier Patterson
New Landscape: The banking sector is
7 emerging from a period of reform
Data Director
Yusra Khadra

Research & Data Team

Nnamdi Ajiduah

14 Regulator’s Perspective: Bank of Ghana Jerome Amedo

Mayowa Hambolu
Andrew Peters

Design

15 Interview: Standard Chartered Bank Ghana Nuno Caldeira

Corporate Banking: Provisioning for industrial

16 growth

18 Interview: Stanbic Bank Ghana

Investment Banking: Reforms keep assets

19 under tighter management

Retail Banking: Banks buy in to technological

21 innovation

22 Interview: Fidelity Bank Ghana

Microfinance: Non-bank sector clean-up

23 leaves opening for traditional lenders and
innovative services
3 AFTER THE RISE | STRONG FUNDAMENTALS: GOVERNMENT AIMS TO BUILD ON STRENGTHS AND ADDRESS WEAKNESSES

STRONG
FUNDAMENTALS:
GOVERNMENT AIMS TO BUILD
ON STRENGTHS AND ADDRESS
WEAKNESSES

As one of the continent’s most important exporting economies, Ghana has for many
years been viewed as a bright spot in the sub-Saharan economic landscape. Since
the 2007 discovery of offshore oil, a gradually increasing amount of hydrocarbons
exports has joined outflows of gold and cocoa to drive private sector growth and
secure valuable revenues for the government. While the annual expansion of
the sub-Saharan economy has remained stubbornly below the 3% level since
2014, Ghana’s GDP expanded by 6.3% in 2018, according to the World Bank. The
International Monetary Fund (IMF), meanwhile, expects the finalised data for
2019 to show an 6.1% rise. Growth is now expected to slow considerably as the
global economy shrinks on the back of the Covid-19 pandemic, with Ghana’s GDP
expansion projected at 1.5% in 2020.
Despite Ghana’s strong fundamentals, however, its history since independence is
punctuated with economic crises. The nation has approached the IMF for assistance
16 times since the early 1980s, and in March 2019 it completed its most recent
programme when it received the final $185 million tranche of a $918 million, three-
year extended credit facility (ECF). Ghana’s cycles of debt and recovery are largely
attributable to a history of fiscal mismanagement. The current government came to
power on a pledge to end this pattern, and has made returning Ghana to a sustainable
fiscal path a central pillar of its economic strategy.

FISCAL REFORM:
Historically, governments in Ghana have tended to overspend in the run up to
elections in a bid to secure popular support. In the election year of 2020, therefore,
the administration’s fiscal stance has come under particularly close scrutiny. Since
it took office at the end of 2016, the government has sought to reduce a structural
fiscal deficit by lowering expenditure and raising revenue. The ability of the state to
cut spending is limited by fiscal rigidities in areas such as debt servicing and public
sector salaries, making capital expenditure the most frequent target for savings.
The government has also sought to make cost savings by improving efficiency and
tackling corruption. In 2019, for example, authorities removed over 6,000 ‘ghost
names’ from the social security system, saving the government approximately $7.1
million per year.

GHANA’S BANKING LANDSCAPE AFTER THE CAPITALISATION REFORM

4 AFTER THE RISE | STRONG FUNDAMENTALS: GOVERNMENT AIMS TO BUILD ON STRENGTHS AND ADDRESS WEAKNESSES

Revenue raising efforts, meanwhile, have centred on boosting compliance with tax
codes and broadening the tax base. Here the government’s action is limited by the
large component of informal activity in the economy, which the Deputy Minister of
Trade and Industry has recently estimated to account for nearly 30% of Ghana’s GDP.
Extracting revenue from this valuable economic segment is a long-term project,
which the government has embarked upon with the launch of the National Digital
Property Addressing System, which uses GPS to assign an address to every location
in the country. Despite these efforts, Ghana’s structural fiscal deficit persists,
standing at 3.4% in 2019, according to the African Development Bank, which cites a
small improvement from 3.5% in 2018.
Historically, Ghana has succeeded in bridging the fiscal gap through a combination
of domestic and international borrowing. The consequence of this, however, is a rise
in its debt-to-GDP level from under 30% in 2006 to over 70% in 2015. A reduction in
the ratio in 2019 to under 60% was largely the result of a re-basing of the economy in
the previous year, which had the effect of boosting recorded GDP. Ghana, therefore,
continues to devote a considerable amount of its revenue to servicing its obligations:
in 2013, Ghana directed nearly 27% of total revenue and grants to servicing its debt,
but by 2018 this figure had risen to just over 44%, according to the Ministry of Finance.

GOVERNMENT STRATEGY:
As well as restoring fiscal discipline, the current government is deploying a number
of strategies aimed at energising the real economy. The 2020 budget places an
emphasis on boosting the nation’s industrial capacity, building on the government’s
flagship industrial programme, the One District One Factory (1D1F) initiative.
The 1D1F programme, launched in 2018, aims to transform Ghana’s economy from
one driven by the export of commodities to one powered by industrialised value-
addition, with private sector investment acting as a key catalyst. According to
the Ministry of Trade and Industry, more than 180 1D1F projects were at various
stages of implementation as of mid-year 2019. Other key strategic initiatives include
improving access to credit for micro and small enterprises, the Entrepreneurship
and Innovation Plan (NEIP), and the launch of an online electronic registry of all
The government business-related laws and measures to attract foreign direct investment (FDI).
The relative diversity of Ghana’s economy means that the government’s hunt for
is deploying
in-country value addition is taking place across a broad range of economic sectors.
a number of The largest of these, according to the Ghana Statistical Service, is the services sector,
strategies aimed which accounted for just over 47% of GDP in 2019. The sector includes a vibrant ICT
at energising industry which is benefiting from the government’s e-Transform programme, and a
financial services sector that is emerging from a major government-led process of
the real prudential reform.
economy. Ghana’s industrial sector is the second-biggest area of the economy, accounting
for around 33% of GDP. It is also the fastest-growing, thanks to a booming mining and
quarrying sector which expanded by 12.6% in 2019. Future expansion in the sector
is expected to be largely derived from the upstream oil and gas segments, centred
on the Jubilee field currently being developed by Tullow Oil, and the Sankofa-Gye
Nyame Oil Field, being developed by Italy’s Eni.
The third pillar of Ghana’s economy is the agricultural sector, which accounts
for 20% of GDP and provides employment to approximately half of the nation’s
workforce. Farming activity centres on: industrial crops such as cocoa; starchy
staples and cereals, such as cassava and yam; and fruits such as mango and banana.
Ghana remains a net importer of food, and therefore boosting domestic production

GHANA’S BANKING LANDSCAPE AFTER THE CAPITALISATION REFORM

5 AFTER THE RISE | STRONG FUNDAMENTALS: GOVERNMENT AIMS TO BUILD ON STRENGTHS AND ADDRESS WEAKNESSES

has been a national priority under successive governments. The most recent effort
in this regard is the Planting for Food and Jobs initiative, launched in April 2017.

TRADE & INVESTMENT:

Ghana’s growing hydrocarbons shipments helped turn a long-running trade deficit
into a trade surplus in 2017, and in 2018 this advance was consolidated with a 7.5%
growth in merchandise exports. Ghana’s most important export categories are gold,
crude petroleum, and cocoa beans and paste, and its top export destinations are
India, China, Switzerland, South Africa and the Netherlands. Ghana’s trade with
destinations closer to its borders is expected to increase in the medium term as a
result of the newly established African Continental Free Trade Area (AfCFTA), which
is expected to set in train a multi-year process of regional tariff reduction. Ghana is
to host the secretariat of the AfCFTA, a development which provides a boost to the
nation’s ambition to establish itself as a regional trade and investment hub.
The Ghana Investment Promotion Centre (GIPC), which spearheads the
government’s efforts to attract FDI, registered 168 projects in 2018, the latest available
figures, with a total value of $3.54 billion and an FDI component of $3.32 billion. The
bulk of Ghana’s FDI flows are directed towards the general trade and services sectors,
with manufacturing projects ranked third. The GIPC’s latest data shows China to
be Ghana’s most important FDI source in terms of number of projects, followed by
India, the Netherlands and the UK. In terms of value, the Netherlands was the biggest
The bulk of investor in Ghana during 2018, followed by India, Hong Kong and Angola.
foreign direct Ghana has struggled to make gains in the influential World Bank “Doing Business”
investment is report despite the government’s economic reform efforts. The nation ranked 118th out
of 190 countries in 2020, showing a four points decline from 2018 when the country
directed towards
ranked 114th. The decline in ranking can be attributed to the introduction of two new
trade and levies; Ghana Education Trust Fund and National Health Insurance Levy which made
services, with payment of taxes more difficult and expensive as a portion of the recoverable value
manufacturing added tax was allocated to the new levies increasing cost paid by firms.
Ghana remains vulnerable to competition in certain areas when it comes to
ranked third. attracting investment, such as resolving insolvency, where it ranked 161, trading
across borders (158), and paying taxes (152). In other areas, government reforms
have begun to produce results. Ghana scores relatively well in the area of protecting
minority investors (72 globally), securing electricity (79) and obtaining credit (80).
And though Ghana ranks in the bottom half of the worldwide rankings, it is in the
top third among its sub-Saharan peers, ranking 13 out of 48 nations, which its overall
point score of 60.0 is higher than the regional average of 51.39.
Ghana’s medium-term growth outlook has been seen as positive, with high
expectations at the end of 2019 to average nearly 7% over 2020 and 2021, according
to the World Bank. However, Ghana will not escape the effects of a slowing global
economy and disruption caused by the Covid pandemic, making the ongoing reform
of its business environment all the more important to the government’s ambition to
harness private investment to boost domestic production and energise the economy.

GHANA’S BANKING LANDSCAPE AFTER THE CAPITALISATION REFORM

7 AFTER THE RISE | NEW LANDSCAPE: THE BANKING SECTOR IS EMERGING FROM A PERIOD OF REFORM

NEW LANDSCAPE:
THE BANKING SECTOR
IS EMERGING FROM
A PERIOD OF REFORM

The Ghanaian banking sector is emerging from a period of deep-rooted reform that
has radically altered the structure of the nation’s banking landscape. The sector
clean-up, led by the Bank of Ghana (BoG), was a response to concerns that first
emerged five years ago, when a mismatch between the performance of the Ghanaian
economy and the reported results of the nation’s banks prompted observers to
question the banking industry’s financial stability.
In 2014, Ghana’s annual GDP growth fell to 2.9%, its lowest level for many years,
negatively affecting a depreciating currency, a protected energy crisis and rising
levels of inflation. This challenging economic backdrop, however, was not reflected
on the balance sheets of the nation’s banks: while profitability declined modestly,
financial stability indicators remained largely unmoved. The sector’s non-performing
loan (NPL) ratio actually improved to 11% in December 2014, from 13.2% a year
earlier – a counterintuitive outcome during a period of economic stress.
In July 2015, the BoG commissioned the top four auditing firms in the country to
carry out the first Asset Quality Review (AQR) of bank loan books and investment
portfolios. A number of banks were found to have capital deficiencies, either as
result of deteriorating small and medium-sized enterprise (SME) portfolios or
exposure to troubled entities in the energy sector – both state-owned enterprises
and private sector bulk oil distribution companies. Some short-term relief was
subsequently granted in the form of the Energy Sector Levy Act, which introduced
a more favourable payment system for the banks.

LEGISLATIVE CHANGE:
A longer-term solution to the sector’s vulnerabilities, however, came with the passing
of the Banks and Specialised Deposit-Taking Institutions Act of 2016. Under the new
legislation the BoG enjoys more supervisory power than was previously the case.
Moreover, by bringing all deposit-taking entities (including non-banking financial
institutions) under one law, the regulator is better able to supervise banking groups
and financial holding companies in a consolidated way. The law also introduced a
special resolution regime for banks, recognising that a bank failure must be resolved
in a different way to ordinary corporations, and established more exacting criteria
in areas such as licensing and mergers.

GHANA’S BANKING LANDSCAPE AFTER THE CAPITALISATION REFORM

8 AFTER THE RISE | NEW LANDSCAPE: THE BANKING SECTOR IS EMERGING FROM A PERIOD OF REFORM

Also in 2016, the government introduced the Ghana Deposit Insurance Act – a
bid to both protect depositors and shore up confidence in the financial system. The
act was amended in 2018 to provide for the establishment of a full-fledged deposit
insurance scheme, leading to the Ghana Deposit Protection Corporation coming
into operation in November 2019. The BoG followed up its legislative changes with a
second AQR exercise in September 2016, this time carried out by its own examiners
with a limited review by independent auditing firms. The review found that, despite
the steps taken to resolve energy sector debts, nine banks had capital adequacy
ratios (CARs) below the regulatory requirement of 10%, while two institutions were
deemed to be insolvent, showing negative CARs.

CAPITAL REQUIREMENTS:
The results of the second AQR exercise focused attention on the sector’s capital
levels. The BoG’s short-term response was to require that banks with a CAR below
10% submit a capital restoration plan and desist from paying dividends or awarding
salary increases, bonuses and other benefits to directors and key personnel. In
September 2017, the regulator sought to secure the industry’s capital position over
the longer term by introducing new minimum capital requirements.
The new Capital Requirement Directive (CRD) raised the minimum capital
The reforms requirement from GHS120 million ($21.3 million) to GHS400 million ($70.9 million) and
more than established a deadline of December 2018 for banks to meet it – either through capital
injections or by capitalising surplus income. The CRD also changed the way capital
tripled the is defined, making for a more stringent framework, and introduced a set of liquidity
minimum standards aimed at boosting the capacity of banks to respond to external challenges.
requirement, The new requirements have compelled banks to significantly adjust their balance
sheet strategies by aligning their capital bases with the new definitions and reducing
and introduced
the prevalence of illiquid assets. Ghana’s lenders have also been compelled to
a more stringent adjust to the enhanced processes that the CRD brought with it in areas such as
framework counterparty risk and internal stress testing.
for capital
and liquidity MARKET EXITS:
standards. The changing legislative landscape combined with tougher capital requirements
has resulted in a number of banks leaving the market. The two banks found to be
insolvent in the second AQR had their licences revoked in August 2017 and were
placed in receivership. Their deposits and liabilities were transferred to a state-
owned bank. This action marked a divergence from the BoG’s traditional policy of
providing liquidity support to troubled institutions, which the regulator holds partly
responsible for a build-up of vulnerabilities in the sector.
In some cases, the BoG allowed banks that were found to be undercapitalised
during the two AQR exercises time to align themselves with the new rules. In March
and April 2018 three such institutions were placed under official administration,
with the administrator being given six months to return the institutions to regulatory
compliance. In August 2018 the licences of these banks, as well as a number of
others, were revoked and their assets and liabilities assumed by a limited liability
company licensed by the BoG as a bridge bank.
In total, nine banks lost their licences as a result of the reform effort. Four of
them were deemed to be undercapitalised or insolvent during the two AQRs, and
five of them were found to have obtained their licences by false pretences through
the use of “suspicious and non-existent capital”.

GHANA’S BANKING LANDSCAPE AFTER THE CAPITALISATION REFORM

9 AFTER THE RISE | NEW LANDSCAPE: THE BANKING SECTOR IS EMERGING FROM A PERIOD OF REFORM

The BoG estimates that its overhaul of the sector saved 70% of potential job
losses and around $265.8 million of customer deposits. The cost to the taxpayer is
estimated at some $1.9 billion, or 3.2% of Ghana’s 2019 GDP. The financial system
has also suffered an unquantifiable reputational cost, which continues to mount as
the authorities carry out a similar process of reform on the investment sector.
The BoG has announced its intention to further enhance the regulatory framework
over the short term, including new regulations aimed at tightening the credit
extension framework; increasing the BoG’s regulatory and supervisory powers;
introducing a more robust crisis management framework; and fully implementing
the deposit insurance legislation first introduced in 2016. While these measures
may help to restore confidence in the sector, they will result in a higher regulatory
burden for Ghana’s remaining banking institutions.

REFORMS & REGULATIONS

Introduced
September 2017
36 2017
Banks GCB acquires UT and Capital
RECAPITALISATION TO

August
Bank
2018

HFC rebrands as Republic

April
Bank

Bank of Ghana merges 5 local

August banks into newly formed
Consolidated Bank of Ghana

GHS400m
OmniBank and Sahel-Sahara
($71m) September
Bank announce merger

FIrst Atlantic Bank acquires

December
Energy Bank
Deadline
31 Dec. 2018 2019

Premium Bank and Heritage

Bank licences revoked; assets
and liabilities transferred to
Consolidated Bank

GN Bank reclassified
as Savings & Loan after
failing to meet new capital
January requirement

Stanbic takes over Bank of

Baroda operations after the
latter voluntarily exits market

BoG approves FNB

takeover of GHL (acquisition
completed May 2020)
23 2020
Banks

GHANA’S BANKING LANDSCAPE AFTER THE CAPITALISATION REFORM

10 AFTER THE RISE | NEW LANDSCAPE: THE BANKING SECTOR IS EMERGING FROM A PERIOD OF REFORM

NEW LANDSCAPE:
The reform of Ghana’s banking sector has resulted in an industry made up of fewer
institutions. In 2017 the market was composed of 36 licensed banks, but by the time
the BoG had completed its series of reviews and licence revocations the number of
operating banks in the country was reduced to 23.
There has also been a significant consolidation of banking sector infrastructure: as a
result of the BoG’s sector clean-up the second-largest branch network in the country is
now operated by the Consolidated Bank of Ghana, a government-owned entity that was
established to control the assets and liabilities of five institutions that lost their licences:
Construction Bank, Beige Bank, Royal Bank, UniBank and Sovereign Bank. During this
period there was one voluntary departure from the market: Bank of Baroda (Ghana), a
wholly owned subsidiary of the Bank of Baroda India, exited the market in 2018 following
a decision by the Indian government to rationalise the overseas operations of its banks.

BIG THREE:
According to Asoko’s calculations using the most recent data available, the market
remains relatively fragmented with just three institutions enjoying double-digit
market shares despite the reduction in the number of licences. The largest of these
is Ecobank, which reported total assets of $2.3 billion for the 2019 financial year,
accounting for an estimated market share of 11.5%. The bank was established as a
The reforms regional concern in 1985, as part of an initiative led by the Economic Community
have resulted of West African States (ECOWAS) to counter the dominance of foreign and state-
owned banks in West Africa and now has a presence in 36 countries across the
in an industry continent. Ecobank Ghana was then incorporated in 1989 and began operation in
made up 1990, listing on the Ghana Stock Exchange in 2006.
of fewer The second-largest bank is Ghana Commercial Bank, which has approximately 10.9%
market share and total assets of $2.2 billion. The bank was established in 1953 as the
institutions and
Bank of the Gold Coast, an indigenous alternative to foreign banks. It became the Ghana
a consolidation Commercial Bank in 1957, when Ghana obtained its independence, and was operated
of infrastructure. thereafter as a government-owned commercial bank. Rebranded again in 2013 as GCB
Bank Limited, the government retains control of the institution through a 21.36% direct
holding and a 29.89% holding by the Social Security and National Insurance Trust.
Ghana’s ‘big three’ banks are rounded out by Absa Bank Ghana, which claims a
10.3% market share and total assets of $2.1 billion. Previously operating under the
Barclays brand, Barclays Africa Group relaunched as Absa Group after the London-
based ledner sold down its controlling stake to less than 15% and in February 2020,
Barclays Bank Ghana was rebranded as Absa Bank Ghana Limited.

SECOND TIER:
Beneath these three lenders, a tier of six banks record assets above $1 billion: the
Ghana-headquartered Fidelity Bank ($1.9 billion); Stanbic Bank Ghana ($1.6 billion), a
division of Standard Bank, a member of the Johannesburg-based Standard Bank Group;
Consolidated Bank of Ghana ($1.3 billion), the 2018 market entrant formed by the
merger of five banks unable to meet the minimum capital requirements individually;
Cal Bank ($1.2 billion), a locally owned institution that commenced operations in 1990;
Zenith Bank Ghana ($1.2 billion%), part of the Nigerian-based group that is now a major
presence across West Africa; and Standard Chartered Bank ($1.1 billion), which, having
operated in Accra for over 120 years, is the oldest banking institution in the country.
As well as the domestic and regional players in the market, there are also four
representative offices of foreign banks in Ghana: Bank of Beirut; Exim Bank of
Korea; Citibank Ghana; and Ghana International Bank.

GHANA’S BANKING LANDSCAPE AFTER THE CAPITALISATION REFORM

11 AFTER THE RISE | NEW LANDSCAPE: THE BANKING SECTOR IS EMERGING FROM A PERIOD OF REFORM

FOREIGN BANK OWNERSHIP

100% 93.4% 93.5% 68.9% 100%

Absa Group Limited Access Bank PLC Bank of Africa Group Ecobank Transnational First Bank of Nigeria
Incorporated

100% 100% 98.0% 66.5% 60.2%

May
2020

First Rand FNB Ghana Guaranty Trust Bank PLC Republic Financial SG-Financial Services
Holdings Limited Holding

90.8% 69.4% 99.5% 98.1%

United Bank for Africa Standard Chartered Stanbic Africa Holdings Zenith Bank PLC
PLC Holdings Limited

LOCAL BANK OWNERSHIP

Privately Owned

JS Addo Prudential Kedari

Africa
Consultants Staff Welfare Nominees
Fund
Capital LL
Ltd Ltd

96.0% 3.6% 24.8% 11.2% 58.1% 16.9% 37.1%

0.4% 10.3% 4.7% 13.5% 9.5% 8.5%

NHTC A.A
Brokerage Global
Services Investments
Ltd Ltd

Publicly Listed / State Owned

Financial
Investment
Trust

97.0% 29.9% 100% 24.2% 60.5% 32.3%

21.4% 29.0% 5.0%

Employee
Share
Ownership
Plan

GHANA’S BANKING LANDSCAPE AFTER THE CAPITALISATION REFORM

12 AFTER THE RISE | NEW LANDSCAPE: THE BANKING SECTOR IS EMERGING FROM A PERIOD OF REFORM

FINANCIAL STABILITY:
Ghana’s leaner banking sector is also a more stable one. The banking industry’s
financial soundness indicators improved significantly during 2018, as the effects of
the reform effort were made apparent in the aggregate balance sheet. According to
BoG data, the NPL ratio fell to 18.2% in December 2018, from 21.6% in December
2017, due to the implementation of the regulator’s loan write-off policy and the
resolution of a number of distressed banks.
The capital position of the sector also showed a considerable improvement:
regulatory Tier I capital to risk-weighted assets increased from 13.5% to 21.0%
during the year – comfortably above the regulatory requirement. Significantly for the
efficient operation of the sector during this challenging period, liquidity indicators
also improved over the year: the ratio of liquid assets to total assets increased to
27.6% by the close of 2018, from 26% a year earlier. Also, the ratio of liquid assets to
short-term liabilities increased to 36.7% from 33.3% during the same period.

Change in capital & liquidity indicators 2017-18

2017
13.5%
Tier-1 capital to risk-weighted assets 2018
21.0%

26.0%
Liquid assets to total assets
27.6%

33.3%
Liquid assets to short-term liabilities
36.7%

Source: Bank of Ghana

Improving asset quality, increased capital buffers and growing liquidity had a
Improved asset positive effect on the BoG’s Banking Sector Soundness Index (BSSI), the composite
quality, greater indicator which tracks the overall stability of the industry. Having shown a negative
capital buffers trend from December 2016, as the sector’s weaknesses were uncovered, it followed
a positive trajectory after September 2017 as the regulator’s remedial effects took
and rising
effect and, encouragingly, the key indicators showed no significant deterioration
liquidity has through 2019.
had a positive Nevertheless, the BoG views the current level of NPLs (around 18% in mid-
effect on sector 2019, the latest figures available) to be higher than desirable, and it has therefore
proposed a number of steps for banks to reduce it. These include a boosting of risk
stability. management frameworks and the writing off of bad loans – including the remaining
legacy debt that was generated by the nation’s most recent energy crisis. The BoG
has also set out a number of initiatives aimed at enhancing the soft infrastructure
around credit administration, including the formulation of new regulations to
support the Credit Reporting Act, passing a new Borrowers and Lenders Bill to
address weaknesses in the existing Borrowers and Lenders Act, and implementing
new legislation aimed at providing more channels for payments and settlements.
While these measures, combined with the sustained firming up of the sector’s
financial stability indicators, will do much to restore confidence amongst investors,
the BoG faces a significant challenge in restoring the trust of ordinary Ghanaians
in the banking sector: in 2018 the BoG received a total of 2,149 complaints from
customers of its licensed banks, which represented a 340% increase on the number
of complaints it received in the previous year.

GHANA’S BANKING LANDSCAPE AFTER THE CAPITALISATION REFORM

13 AFTER THE RISE | NEW LANDSCAPE: THE BANKING SECTOR IS EMERGING FROM A PERIOD OF REFORM

RESTORING CONFIDENCE:
Restoring consumer confidence in the banking sector is an urgent priority for the
regulator, and recently issued corporate governance regulations are an important
component of this effort. The Bank of Ghana (BoG) introduced a new Corporate
Governance Directive (CGD) in March 2018, and – after receiving feedback from
the industry – revised and reissued the guidelines in December 2018. The new
framework has been applied to banks, savings and loans companies, finance houses
and financial holding companies. Notably, microfinance companies do not fall
within the scope of the CGD – their exemption being one of the key clarifications
established in the revised version of late 2018.

BOARD DIRECTIVES:
A new Corporate The new CGD makes a number of important changes to the way banks and other
Governance deposit-taking institutions form their boards and managerial structures. Limits have
been placed on the tenures of key personnel, with CEOs being restricted to 12 years
Directive in position, directors to nine years, and the board chair to six years. The composition
introduced in of bank boards is another focus. The CGD requires that the positions of CEO and
March 2018 board chair cannot be held by the same person, and that one of the positions must
aims to restore be occupied by a Ghanaian national.
The regulations seek to improve the quality of decision making by requiring that
consumer board members should collectively possess competencies in areas such as banking,
confidence. accounting, law, economics, risk management, entrepreneurship and strategic
planning. Boards must also form at least two sub-committees in the areas of audit
and risk, both of which are to be chaired by independent directors. The regulations
also demand that boards play a greater supervisory role over their respective bank’s
operations, requiring them to conduct an annual performance evaluation and
present it to the BoG on the 30th of June every year.

IMPLICATIONS:
The full implications of the CGD are yet to be seen. As key personnel reach their
tenure limit, banks risk losing valuable expertise and will be compelled to compete
for suitably qualified replacements. Similar attempts to impose term limits in other
African jurisdictions have resulted in court action and regulatory reversals.
Applying the new stipulations is likely to be particularly challenging for smaller
institutions and rural banks where boards lack the breadth of expertise that the
larger, universal institutions possess, and are likely to face difficulties in securing
suitable personnel.

GHANA’S BANKING LANDSCAPE AFTER THE CAPITALISATION REFORM

14 AFTER THE RISE | REGULATOR’S PERSPECTIVE
Restoring confidence
The regulator assesses the impact of the sector
reforms of 2017
Ernest Addison,
Governor,
Bank of Ghana
The growth experience of the banking industry is
intertwined with that of the economy as a whole and
the industry has been central to economic policy and
structural reforms. This is because a sound and efficient
banking system is indispensable for financial stability
and indispensable for a healthy and robust economy.
Completion of actions to reform Ghana’s financial
sector has led to gains in the country’s monetary and
financial stability, and confidence is being restored.
These gains should begin to translate into lower
interest rates for issuing debt, further anchoring of
inflation expectations at the low and stable levels and
financial stability. However, our ability to maintain this
confidence depends on the freedom with which the
central bank is able to take necessary but unpopular
decisions to restore price and financial stability.
It is important to note that the Bank of Ghana has
enjoyed considerable political support enabling it to
be effective in implementing these rather difficult
measures to comprehensively reform the banking and
specialised deposit-taking institution (SDI) sectors of
the financial system. These have involved increases
in the minimum capital of universal banks, resulting
in mergers and acquisitions, to ensure orderly
consolidation of the sector and revoked licences for
insolvent institutions.
In addition, the difficult decisions taken by the Bank
of Ghana were based on its technical assessment and
judgment of the conditions facing the financial sector,
and I feel confident about gains and achievements
made so far. The financial sector is currently healthier
and better able to withstand external shocks
compared to the financial sector at the beginning of
2017. It is better capitalised, liquid, profitable, more
efficient and has adequate capital buffers to enable it
manage any adverse external developments. Such an
optimistic outlook seemed nearly impossible in 2017
when the reforms began.
Again, a dynamic growth-oriented financial system
must be strong, well capitalised, and effectively
supervised within a fair regulatory environment in
accordance with international best practices and
standards. There is, therefore, a huge regulatory
burden for the central bank to remain vigilant towards
all forms of risks in the banking sector and to tighten
the regulatory and supervisory responsibilities to
continue with efforts at strengthening and stabilising
the banking industry. These reforms will ensure the
safety and soundness of banks, align macro and micro-
prudential risks to the bank’s capital and address
cross-sectoral and cross-border risks to the industry.
In conclusion, we are proud of the reforms and
achievements that have occurred due to the clean-up
exercise. These have been possible as a result of support
and collaboration with key stakeholders, that is the
banks and SDIs, strong support from the government,
and also support from our international partners - the
IMF, World Bank and other development partners. The
Bank of Ghana will continue to pursue policies and
programmes aimed at developing a vibrant financial
system capable of harnessing financial resources for
the growth and development of our country.
GHANA’S BANKING LANDSCAPE AFTER THE CAPITALISATION REFORM
15 AFTER THE RISE | INTERVIEW
Stepping up
Uniquely African innovations will help increase
financial inclusion
Mansa Nettey
Managing Director
Standard Chartered Ghana
Now that the sector has had time to settle
after the reforms of 2017, how would you
assess the impact of the regulatory changes?
The background to the reform exercise was the IMF’s
asset quality review which established a high level of non-
performing loans (NPLs) across Ghana’s banking system.
Some banks had not accurately reported their NPLs,
creating hidden weaknesses in the system that could have
had a systemic impact had they been left unaddressed.
In addition, issues of weak corporate governance were
identified in some of the banks.
Given these outcomes, the reform was needed,
especially the correction to capitalisation levels. The
central bank has really stepped up in terms of ensuring
that banks maintain very high corporate governance
standards. The regulator has introduced new directives to
make sure that the banking industry remains sustainable.
We have now started to see the impact of the reforms,
with quarterly reports showing a number of banks
becoming profitable across 2019 and assets growing quite
considerably. We have started witnessing the return of
confidence to the banking sector. As a bank that takes
corporate governance seriously, Standard Chartered
appreciates the positive outcomes of the reforms which
have led to the creation of a more level playing field.
Asset quality was key to the sector reforms,
but what has the emphasis on reducing NPLs
meant for access to credit in the economy,
especially for small businesses, which tend
to face a financing gap?
Alongside the banking sector, the regulator also cleaned
up the microfinance sector, impacting institutions that
were traditionally the source of financing to small and
medium-sized enterprises (SMEs). The absence of the
bulk of these microfinance institutions has created a
major gap.
Going forward, it is important that banks focus on
building capacity in the SME sector by making them
bankable and creditworthy. Helping them understand
how being set up and run professionally with
appropriate succession plans in place remains critical
to the sustainability and growth of our economy. I
am a firm believer in the fact that addressing the
issues in the banking sector is a necessary first step
which needs to be complemented with reforms in the
corporate ecosystem, to ensure the sustainability of
the real sector. To this end, some banks have also been
working with fintech operators to support SMEs with
a variety of innovative platforms and solutions that
ensure SMEs develop credible data that could better
facilitate their access to funds.
In terms of facilitating financial inclusion,
do you see fintech operators as a potential
threat or opportunity for the banking sector?
There is an opportunity to collaborate here. We have
seen tremendous growth in the mobile money space,
and the unique thing about this is that we often talk
about innovation in other markets, but this is innovation
that is unique to Africa. Considering its commendable
impact on financial inclusion, how can banks choose
not to be part of that story?
Rather than view fintech operators as a threat, it would
be helpful to focus on possible partnership opportunities
that amplify the value each party offers. At Standard
Chartered, we have waded into the mobile money space
via our SC Mobile digital banking app, and we are looking
for opportunities to partner with fintechs to develop the
experience of our client base even further.
GHANA’S BANKING LANDSCAPE AFTER THE CAPITALISATION REFORM
16 AFTER THE RISE | CORPORATE BANKING: PROVISIONING FOR INDUSTRIAL GROWTH

CORPORATE BANKING:
PROVISIONING FOR INDUSTRIAL
GROWTH

All of Ghana’s major universal banks have strong corporate divisions which pursue
business with governments, domestic, regional and global corporations, financial
institutions and international organisations. Typical corporate product suites
include loans and liquidity instruments, transaction banking, investment banking
services, securities, asset management services, and fixed income, currencies and
commodities desks.
Credit advanced to the private sector considerably exceeds that directed towards the
public sector, with loans to the state accounting for just 10% of the total in the final
quarter of 2019, a slight gain on the year before. The commerce and finance sector
is traditionally the largest recipient of credit in Ghana, but uncertainty caused by the
reform of the financial industry nudged it into third place in 2018, at 16.7% of the total.
This dip was relatively short lived, with the sector regaining most of the ground lost by
the close of 2019, when it accounted for 22.3% of credit, just behind services on 22.7%.

LENDING CRITERIA:
The high level of non-performing loans (NPLs) in the Ghanaian market has resulted in
gradual tightening of lending criteria. A more conservative lending stance was a significant
factor in a 10% decline in industry advances in 2017 – the first contraction of credit
suffered by the industry in five years. While this downturn was partially reversed by an
8% expansion of lending in 2018 and a further rise through 2019, the banking industry’s
credit stance remains tight and getting tighter as coronavirus affects the economy.
As with other markets, banks in Ghana utilise a wide range of criteria when assessing a
corporate customer’s creditworthiness, including overall financial performance, liquidity
levels, the extent of any leverage undertaken by the firm, management effectiveness and
growth ratios. Corporate loans are also generally secured against any of a wide range of
collateral types. These typically include residential, commercial and industrial property;
equipment such as motor vehicles and plant machinery; cash; bank guarantees; and
floating charge over other assets. Where loans are considered to be at risk for any reason,
assets attached to them are often subject to regular valuations, the frequency of which
is determined by the level of price volatility of each collateral type and the nature of the
credit product. Borrowers must therefore be prepared to respond to bank requests for
additional collateral where there has been an impairment in underlying assets relevant to
individual loans and advances.

GHANA’S BANKING LANDSCAPE AFTER THE CAPITALISATION REFORM

17 AFTER THE RISE | CORPORATE BANKING: PROVISIONING FOR INDUSTRIAL GROWTH

LENDING RATES:
The cost of borrowing in Ghana is also a key concern for both banks wishing to
expand their corporate portfolios and companies planning to fund their expansion.
High lending rates have historically rendered Ghanaian banking institutions less
competitive than regional and global peers, and are frequently cited as a barrier to
private investment and the economic development of the country.
Since 2018, the domestic banking industry has used the Ghana Reference Rate
(GRR) as a benchmark to establish lending rates for credit facilities. The GRR is
formulated according to three parameters: the interbank rate at which banks lend
capital to each other; the 91-day Treasury Bill: and the Bank of Ghana’s (BoG)
monetary policy rate. The normal procedure by which banks determine lending
rates is to use the GRR as a base reference and add a premium to it, which will vary
from customer to customer according to the bank’s assessment of the likelihood of
default. The movement of the GRR is therefore of significant interest to potential
borrowers, and the metric has become a key signal with regard to the availability of
credit in the domestic market.
While the GRR rests upon three parameters, in practice it closely mirrors the
Though bank central bank’s monetary policy rate, which since 2017 has been falling in response to
an improving inflation environment. The regulator’s monetary policy committee has
interest rates made a series of rate cuts over the past three years, which has seen the main policy
have come rate decline from 21 .5% in mid-2017 to 16% in January 2019 – its lowest level since
down, the pace 2013. The rate remained unchanged throughout the year, before being lowered to
14.5% in March 2020. The GRR has therefore been reduced to a similar level, standing
of decline has
at 16.16% in July 2019 and 14.77% as of May 2020, according to BoG data.
not matched
that of the
reference rate. THEORY & PRACTICE:
In theory, therefore, Ghana’s banks have been able to take advantage of a declining
GRR to offer lower lending rates – to the benefit of both borrowers and the wider
economy. The decline of lending rates, however, has been a modest one: between
June 2012 and May 2018 the average commercial bank lending rate was 28.42%,
and by the period June 2018 to June 2019, the average rate had declined to 27.47%.
As the BoG policy rate and GRR declined further in 2020, banks followed, with the
average rate falling below 23% for the first time in 12 years in April 2020. While
the direction of the trend is an encouraging one, the slow rate of change reveals a
key challenge for both the banking industry and the regulator: while the GRR may
decline, the premium added to it by lenders when they determine the lending rate
remains problematically high. This is a result of the banks’ perception of the risk
environment and the high level of NPLs that they carry in their accounts.
Ghana’s lenders have been burdened by high levels of defaulting loans for
decades. Between June 2012 and October 2019, the banking sector’s aggregate NPL
level remained around the 15% level, considerably higher than the rate found in
developed markets such as the European Union – where NPLs stood at an average
of 3.4% in 2018. Recent years have seen the NPL rate climb still higher, partly the
result of tightening economic conditions, but also an outcome of the regulator’s
insistence that troubled loan facilities are more swiftly recorded and provisioned
for. The BoG’s clean-up of the banking sector and its drive to improve asset quality
is therefore essential not just to the financial stability of the banking industry, but
also the affordability of credit facilities and, by extension, the economic expansion
of the country.

GHANA’S BANKING LANDSCAPE AFTER THE CAPITALISATION REFORM

18 AFTER THE RISE | INTERVIEW
Incubating ideas
With credibility restored, banks build on trust to
innovate in an increasingly digital market
Alhassan Andani
Chief Executive
Stanbic Bank Ghana
To what extent do you feel that reforms
carried out by the Bank of Ghana have
provided the necessary stability for the
banking sector?
The situation that led to the reforms introduced in
September 2017 was for me not really a banking crisis
but credibility crisis, a significant credibility crisis.
Corporate and retail consumers had a poor perception of
traditional banks as paying low interest rates on deposits
and being slow to appraise new account requests. This
created an opportunity for non-traditional banks that
had little or no compliance structures in place to open
accounts without reference to KYC requirements. There
was a clear regulatory gap in terms of responsibility
and accountability. The only way to address this was to
name it, shame it and create awareness so that it doesn’t
happen again. The reforms provided a jolt that created
awareness, which in turn solved the credibility crisis.
Though the takeover appeared harsh, there was little
interruption internally, with data records and physical
assets both managed well. The goal was to guarantee
100% of deposits in the resolution process, which was
very ambitious, but the reforms were implemented
effectively, and deposits were saved.
Regaining the confidence of clients must
be more important than ever as banks face
increasing competition from rising fintech
provision. How can banks take advantage of
these market changes?
We see the rise of fintech as an opportunity to
collaborate. The thing is, who would you trust today
with your data - a bank or fintech? You would trust the
bank. So that’s our currency. Our currency in the market
is that our customers trust us. They may not love us, but
they trust us. We will protect their data.Technology will
help us fulfil it, so trust us with your data.
With that in mind, our strategy now is to build a
mainframe that enables us to partner with third-party
service and product providers to give our clients
everything they need in one location. We expect more
partnerships and opportunities ahead in collaborating
with fintechs.
Another potential growth market for banks
is SME finance, which has been a challenge
across Africa. How is Stanbic responding to
the needs of this segment?
When we talk about SMEs in Ghana, or indeed Africa
more generally, we are not talking about start-ups doing
the same, traditional, uncompetitive things that Africa
has been doing for a long time. We’re no longer talking
about SMEs as mom-and-pop corner shops; SMEs are
now being run by people who are working to solve real
problems in the world. I’ve seen entrepreneurs come
into Stanbic’s incubator programme just after ideation
and three months down the line, they are ready to
roll out products which can be scaled up easily to
become global goods and services. And these are just
youngsters under 30 years old, so that’s the kind of
SMEs we’re talking about. They are taking off like a
rocket and that is the future of SMEs in Africa.
As financial institutions, we need to change our
mindsets on these up-and-coming SMEs to be able to
offer the right type of finance they need to reach their
potential. As well as access to bank financing, we need
to see our capital and equity markets scale up quickly
so these SMEs can grow across Africa and even globally.
GHANA’S BANKING LANDSCAPE AFTER THE CAPITALISATION REFORM
19 AFTER THE RISE | INVESTMENT BANKING: REFORMS KEEP ASSETS UNDER TIGHTER MANAGEMENT

INVESTMENT BANKING:
REFORMS KEEP ASSETS UNDER
TIGHTER MANAGEMENT

While a number of Ghana’s larger commercial banks operate investment banking

divisions, their activities are relatively limited in scope. The five banks and one
brokerage licensed by Ghana’s Securities and Exchange Commission (SEC) to act
as issuing houses (Absa, Fidelity Bank, IC Securities, Stanbic Bank and Standard
Chartered) play an important role in the primary market through their arranging
and underwriting initial public offerings.
The secondary market services offered by the banking sector vary considerably
from one institution to the next. Those banks that are part of pan-African universal
financial services firms have the advantage of group-level investment platforms that
Investment they can market to their domestic client base. Some of the largest banks in the domestic
market, however, have yet to develop comprehensive investment platforms: in May
services offered 2019, Ghana’s biggest lender, GCB Bank, revealed plans to convert its development
by banks include finance unit into an investment bank, which will operate as GCB Securities.
securities trading,
custody services,
INVESTMENT SERVICES:
and assets For corporates, Ghana’s larger banks generally offer basic services such as securities
and liability trading, custody and escrow services, and assets and liability management through
management. their Treasury departments or dedicated capital markets units. Private banking
for high-net-worth individuals, including securities trading and investment funds,
usually forms part of banks’ retail offerings.
In the fund space, banks compete for market share with 140 fund managers
licensed by the SEC, which together hold more than $3.5 billion worth of assets
under management (AUM). A further tranche of assets, around $496.2 million,
is held by Ghana’s collective investment schemes, which take the form of mutual
funds. The high returns available from government Treasury securities has meant
that fund managers have historically found it easy to attract subscribers to funds
largely based on money market instruments. However, the Bank of Ghana’s clean-
up of the banking sector has had a knock-on effect on the investment arena, with
investors seeking to withdraw deposits and fund managers reporting assets tied up in
Treasury bill-linked instruments held by troubled banks, savings and loan companies
and microlenders. According to the SEC, in 2019 fund managers reported that
approximately $1.6 billion worth of assets were effectively inaccessible, prompting
the regulator to launch forensic audits into a number of fund management firms.
In November 2019 the SEC announced that it had revoked the licences of 53
fund managers, advising their customers to present evidence of investment, such
as certificates and account statements, to Consolidated Bank of Ghana. Originally
established to handle the assets of insolvent banks, the state-owned lender will
oversee a reimbursement process by which the government has offered to pay
out a capped amount to investors. The reputational damage suffered by the fund
management industry is considerable, and provides an opportunity for banks
which have emerged unscathed from the reform process to enter or expand their
operations in the investment sphere.

GHANA’S BANKING LANDSCAPE AFTER THE CAPITALISATION REFORM

21 AFTER THE RISE | RETAIL BANKING: BANKS BUY IN TO TECHNOLOGICAL INNOVATION

RETAIL BANKING:
BANKS BUY IN TO TECHNOLOGICAL
INNOVATION
Ghana’s universal banks offer a wide range of retail services, including the standard
chequing accounts on which their card services are based, as well as specialised
transactional accounts aimed at niche demographics, such as students. Most of the
larger institutions also offer an array of investment products, including short- and
long-term fixed deposit, seven- and 32-day notice accounts and hybrid accounts
that are investment-based but allow for deposits at any time.
Retail lending, meanwhile, mostly comprises individual home loans and personal
loans. While longer-term finance and lending to corporate entities are generally
secured, Ghana’s banks are usually willing to advance shorter-term credit facilities
to individuals on an unsecured basis. The absence of a reliable credit rating system,
however, means that the default risk of the banking sector’s retail assets has emerged
as a key industry challenge. Banks have sought to counter this risk by enhancing
their credit administration capabilities, for example by monitoring customer activity
and assessing information such as employment status and delinquency history to
generate behavioural scores for individual customers.

EARLY ADOPTER:
Banks have The retail operations of Ghana’s universal banks benefit from the fact that many
increasingly of the leading institutions in the country are part of regional banking groups. As a
started to result, the innovations that are transforming the retail banking environment across
partner Africa are quickly adopted by the domestic market. Historically, this has meant that
with fintech Ghana has been at the forefront of the emergence of new technology and trends,
such as ATM deployment and the emergence of internet banking, on the continent.
companies to More recently, the online channel has given way to mobile banking as the key
establish digital battleground on which banks compete to enlarge their retail portfolios. According
platforms. to the Bank of Ghana, the number of registered internet banking customers fell by
12% in 2018, from 937,000 to 816,000, while the number of registered mobile money
accounts increased by 36% to 32.6 million at the end of 2018, compared to 23.9
million a year earlier.

FINTECH ARENA:
Whereas in the past banks were content to allow telecommunications companies to
take the lead in developing mobile money solutions, more recently they have started
to partner with fintech companies to establish their own platforms. This expansion
has been aided by a recent infrastructural advance in the form of the central bank’s
Mobile Money Interoperability Project. Launched in 2018, the initiative connects
mobile money platforms with the Ghana National Switch and E-zwich (Ghana’s
biometric smart card system), enabling customers to transfer mobile money across
networks and from their mobile money wallets to their bank accounts and vice versa.
Regulatory change is also driving the uptake of technology by the banking
industry, most notably the Payments Systems and Services Act, passed in March
2019. The new legislation makes it easier for the banking and insurance sectors
to work with fintech firms to produce new products and services, and results in a
potentially fruitful blurring of the lines between traditional banking activities and
the new business models of non-banking institutions.

GHANA’S BANKING LANDSCAPE AFTER THE CAPITALISATION REFORM

22 AFTER THE RISE | INTERVIEW
Collaborative efforts
How banks remain relevant in a digital environment
Julian Opuni
Managing Director
Fidelity Bank
Disruption in the banking sector has
encouraged banks to adapt to new modes
of innovation and inclusion. How has this
process played out at Fidelity?
If you take one of the biggest disruptors to the banking
sector, it’s mobile money and the telcos. We adapted
to this development through partnerships with the
telcos and today we stand as the biggest holder of
the mobile money float, supporting all mobile money
in the country. This happened because the founders
of Fidelity Bank recognized the opportunity for
collaboration and innovation at the inception of the
mobile money concept in Ghana. From that point it
became a strategic objective to align with what MTN
was trying to create. That was a time when there were
not many fintechs or any real clarity around who or
what the disruptors/disruption could be. So, between
2013 to about 2017, we have been able to adapt and
find opportunity in the midst of the disruption.
Now, since 2017 the markets have changed
significantly again. What we are seeing now is that it’s
fintechs, not only the traditional telcos, who have come
into the space, somewhat like aggregators connecting
the telcos to banks or to other services.
The market has a whole range of fintechs that
are doing amazing things like providing payment
platforms and services, which has made the market a
very different place to operate in. If a player does not
innovate and make their service relevant in this new
space, they will probably not be around in the next
four to five years.
Going forward, what do you think is going
to be the best approach for banks to take to
retain their position in a changing market?
We need more collaboration with the right fintechs
based on the key areas where there is likely to be
the most impact. In the short term, banks will remain
relevant via their collaborations with fintechs to develop
bank agnostic platforms. Banks will need to ensure that
they can build value on these agnostic platforms and
contribute to their creation. Otherwise, a disruptor will
capitalise on the opportunities of the digital age to the
detriment of traditional banks.
If you create the right technology platforms, you will
have an underlying stake in that platform. From there,
you can work out how to build value on that platform. This
is where your competitive advantage comes in, because
if you do not create the agnostic platform, someone else
will own it and you will be looking for the ability to play on
it, which will be on someone else’s terms.
Increased inclusion has been a major target
of fintech solutions. How does this fit in with
Fidelity’s strategy?
Going forward, Fidelity’s fintech strategy is multipronged,
but financial inclusion is at the forefront of our thinking.
We remain open to collaboration with new partners in
high impact areas. Fintechs are essential players in the
evolution of financial services and we recognise the need
to boost our internal readiness for greater collaboration
with the fintech community.
Deepening financial inclusion continues to be a key
objective of the bank. As a local bank, our clients reflect
the economy of Ghana, which comprises everything
from large and global corporates to a sizeable informal
sector. While our strong relationships with many key
multinationals in Ghana is evidence of our success in
serving the upper tiers of the market, we were also one
of the first banks to invest in business units to serve
the bottom of the banking pyramid. Today, we have the
largest agency banking network in the country and we
remain committed to expanding financial services to the
underbanked and unbanked.
GHANA’S BANKING LANDSCAPE AFTER THE CAPITALISATION REFORM
23 AFTER THE RISE | MICROFINANCE: NON-BANK SECTOR CLEAN-UP LEAVES OPENING FOR TRADITIONAL LENDERS AND INNOVATIVE SERVICES

MICROFINANCE:
NON-BANK SECTOR CLEAN-UP
LEAVES OPENING FOR TRADITIONAL
LENDERS AND INNOVATIVE
SERVICES

Credit integrity remains an issue in the Ghanaian market. It is still standard practice
for banks to lend against a 125% collateral requirement, a demand that excludes
many young companies with potentially strong cash flows from accessing capital.
Commercial banks in Ghana therefore cede a significant amount of potential
business to non-banking institutions that have built their businesses on serving the
nation’s underbanked population.

MICROFINANCE:
Commercial For many start-ups and small and medium-sized enterprises (SMEs), the
banks cede microfinance sector represents an alternative route to funds. The market is
a significant broadly divided into three tiers of microfinance institutions (MFIs). The top tier
consists of formal suppliers such as savings and loan (S&L) companies and the 144
amount of
rural and community banks (RCBs) which serve rural areas across the country.
business to non- Some development and commercial banks have also started to offer specialised
bank institutions microfinance products and services to their customer bases.
serving the Beneath this tier lies a range of semi-formal operators, including credit unions
(which have existed in Ghana since the 1950s), cooperatives and financial non-
underbanked governmental organisations (FNGOs). The bottom tear of MFIs is made up of micro
population. credit organisations and non-deposit taking FNGOs, as well as a large number of
traditional susu – agents that charge small fees to safeguard money and provide
limited credit. The level of regulatory supervision applied to microfinance companies
varies considerably, with the susu operators going largely unsupervised and the top
tier of institutions subject to the same regulatory framework as the commercial banks.

SECTOR INSTABILITY:
Ghana’s microfinance segment was included in the regulator’s recent overhaul of the
financial sector, and entered the process showing even weaker financial soundness
indicators than the commercial banking sector. According to the Bank of Ghana
(BoG), the aggregate capital adequacy ratio (CAR) of RCBs at the start of 2019

GHANA’S BANKING LANDSCAPE AFTER THE CAPITALISATION REFORM

24 AFTER THE RISE | MICROFINANCE: NON-BANK SECTOR CLEAN-UP LEAVES OPENING FOR TRADITIONAL LENDERS AND INNOVATIVE SERVICES

was just 0.5% over the regulatory requirement of 10%, while the segment’s non-
performing loan (NPL) ratio stood at an uncomfortably high 12.6%. Further down
the MFI tiers, the financial soundness indicators were even more concerning: the
CAR of deposit-taking MFIs stood at just 8% at the outset of 2019, while the NPL
ratio was 19.2%. The BoG’s assessment of the S&L segment, meanwhile, found that
low levels of capital and inadequate risk management were commonplace.
Acting on its findings, the regulator withdrew the licences of 192 insolvent
microfinance companies by May 2019, and revoked the licences of a further 155
insolvent microfinance companies that had already ceased operations. By August
2019, the licences of 23 S&L and finance house companies were also withdrawn.

ONGOING REFORM:
The BoG has since 2015 gradually raised the minimum capital requirement for MFIs,
first to GHS1 million ($177,000), then to GHS2 million ($354,000), but by late 2019 a
number of institutions had failed to meet the target. The regulator has warned rural
banks and microfinance agencies that do not meet the revised minimum capital
A doubling requirement that they face the prospect of sanctions. However, in April 2020, the
BoG extended the deadline to meet the latest threshold from June to December
of capital 2020 in light of current market conditions.
requirements The BoG has also floated the idea of creating an apex body for dedicated
since 2015 is microfinance providers, similar to that which already represents and oversees the
RCB segment. The new body would make it easier for the central bank to monitor
expected to
the plethora of MFIs, money lenders, credit unions and susu collectors that continue
consolidate the to engage in lending activity.
MFI sector. The likely result of higher capital requirements and increased supervision is
yet more market exits, an outcome that would further narrow the funding options
open to small businesses and individuals. The widespread perception that the
microfinance sector is financially unsound further weakens the segment’s ability to
act as a useful source of funds.

FILLING THE GAP:

The weakened position of MFIs within the wider credit arena represents an
opportunity for commercial banks that operate, or are willing to invest in, specialised
microfinance divisions. The regulator is explicitly working to encourage banks into
this market by allowing lenders that participate in its Enterprise Credit Scheme
to reduce the cash reserve requirements held with the BoG from 10% to 8%, thus
freeing up liquidity to lend to SMEs.
The RCB segment is also well positioned to capitalise on the declining market
share of MFIs: according to the regulator, the systemic frailties discovered in the
other tiers of the microfinance sector are not present in the RCB segment, and
only a small number of them are struggling to meet regulatory requirements. This
is of particular significance to borrowers within the agricultural sector, where the
RCBs play a prominent role in providing microfinance to smallholder farmers and
extending loans to processors and producers, as well as funding the transport
segment that moves their product to market.
The challenges faced by the microfinance sector also open up market space to
more niche financial solutions, such as private equity and industry-specific venture
capital. This segment includes pioneering development finance institutions that
were already exploiting a funding gap which existed between commercial banks and

GHANA’S BANKING LANDSCAPE AFTER THE CAPITALISATION REFORM

25 AFTER THE RISE | MICROFINANCE: NON-BANK SECTOR CLEAN-UP LEAVES OPENING FOR TRADITIONAL LENDERS AND INNOVATIVE SERVICES

microfinance providers. For example, GroFin, established in 2004 as a specialist in

the financing of small and growing businesses, has established itself in the Ghanaian
market by deploying less stringent lending criteria than commercial banks: whereas
Ghanian banks often ask for as much as 125% collateral, GroFin asks for 60% and –
where it can involve itself in company strategy and see secure revenue schemes – it
can waive collateral requirements altogether.
As well as offering more borrower-friendly terms, organisations like GroFin offer
the security of a regional and sometimes global presence, and often partnerships with
international development finance institutions. As well as pure financing, they frequently
provide ancillary services such as business support or networking possibilities. While
still small players compared to the RCBs, which serve around 7 million customers in
the country, the emergence of nimble development finance institutions represent a
promising diversification in Ghana’s non-banking funding arena.

GHANA’S BANKING LANDSCAPE AFTER THE CAPITALISATION REFORM