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21
Thu, Sep

We need bigger banks

Dr Ernest Kwamina Yedu Addison, Governor of the Bank of Ghana

Mergers and acquisitions in the banking sector have become familiar in the majority of all the countries in the world. A large number of international and domestic banks all over the world are engaged in merger and acquisition activities.

One of the principal objectives behind the mergers and acquisitions in the banking sector is to reap the benefits of economies of scale.

With the help of mergers and acquisitions in the banking sector, the banks can achieve significant growth in their operations and minimise their expenses to a considerable extent.

Another important advantage behind this kind of merger is that in this process, competition is reduced because merger eliminates competitors from the banking industry.

Mergers and acquisitions in banking sector are forms of horizontal merger because the merging entities are involved in the same kind of business or commercial activities.

Through mergers and acquisitions in the banking sector, the banks look for strategic benefits in the banking sector. They also try to enhance their customer base.

In the context of mergers and acquisitions in the banking sector, it can be reckoned that size does matter and growth in size can be achieved through mergers and acquisitions quite easily.

Mergers and acquisitions in the banking sector have the capacity to ensure efficiency, profitability and synergy. They also help to form and grow shareholder value.

It is for this reason that we are excited about some mergers and acquisitions that will happen in the banking industry this year.

Some of the banks have begun talking to each other for possible mergers, while others are shopping for strategic investors to pick up substantial stakes in their banks in order to benefit from both fresh injection of capital and also the synergy of consolidation.

It is instructive that for an economy of about US$40 billion, the country can boast of 35 banks and even there is a queue of applicants waiting for their licences to start operations. And because of their sheer number, some of the banks do not enjoy the economies of scale, while others do have the deep pockets to undertake big ticket transactions, and also certain off-balance sheet transactions.

For instance, take the syndicated loans sometimes as high as US$2 billion raised by Ghana Cocoa Board every year to finance cocoa purchases and also activities. Our banks have not been able to participate in this lucrative deal because their balance sheets are not strong enough and also their capitalisation will not allow them to be over exposed to one borrower because of single obligor limits.

Our banks have not been able to participate in this lucrative deal because their balance sheets are not strong enough and also their capitalisation will not allow them to be over exposed to one borrower because of single obligor limits.

For banks to perform their roles better as financial intermediaries, and also for the economy to benefit fully, the Bank of Ghana should raise the minimum capital requirements very high. Already, there are whispers of the central bank raising it to GH¢300 million, but we think that it should even be higher than that just so that we can have fewer and better capitalised banks.

After all, Nigeria and South Africa have shown the way that a country does not need 35 banks to serve the financial needs of individuals and business. — GB