Recapitalisation - A means of transforming banking sector
The Ghanaian banking system is growing at a fast pace with the number of commercial banks increasing each year.
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Most savings and loans and microfinance institutions are working very hard around the clock to meet the Central Bank’s requirements for gaining licences to become commercial banks.
There are currently 35 fully licensed and operational commercial banks in Ghana that are serving just a little above 7 million people out of the nation’s population of about 27 million. This simply means that there is a huge unbanked population, although the number of commercial banks is growing.
It is very unfortunate that a country with a Gross Domestic Product (GDP) of about US$35 billion and a population of about 27 million has a growing number of commercial banks of 35 and they just serve 7 million people, each of whom maintains either one account or multiple accounts.
The minimum capital requirement for an operational commercial bank in Ghana is GH¢120 million, as required by our central bank, the Bank of Ghana.
Meanwhile, in spite of the growth in the number of operational commercial banks in Ghana, the aggregate of their minimum capital is GH¢4.2 billion, which is about US$976, 744,186.04 at an exchange rate of GH¢ 4.3 to US$ 1.0. This is 2.8 per cent nowhere close to the US$ 35 billion GDP of the country.
Case for increase in minimum capital requirement
As one of the major keys to the success and growth of our economy, the minimum capital requirement for obtaining a licence to operate a commercial bank should be raised to GH¢500 million. This is almost equivalent to US$120 million.
A policy of this nature will cause transformations through mergers and acquisitions in the banking sector. One result would be to consolidate the capital base and promote financial growth.
Another advantage from a more consolidated banking sector would be to make it feasible for banks to grant more long and medium-term loans to the private sector, individuals and to the government.
Examples of these loans include the yearly cocoa syndicated loans and crude oil deals, which most often are granted by foreign financial institutions.
These are services that a consolidated domestic banking sector can and should provide. What is envisaged here will be similar to events in Nigeria’s banking sector when in 2004 the then Governor of the Nigerian Central Bank raised capital adequacy requirements from N2 billion to N25 billion.
This policy freed Nigerian banks from reliance on public sector funds and better equipped them to finance bigger projects within the oil, gas and telecommunication sectors.
Any policy that raises the minimum capital base of commercial banks in Ghana will boost the integrity of our banking sector in such matters as effective adherence to sound practices in corporate governance.
This will partly be due to the fact that the central bank will have a much smaller number of banks that it can more effectively supervise and more efficiently monitor their activities.
Furthermore, the confidentiality and safety of the funds of depositors can be more effectively be safeguarded with the limited resources of the central bank.
A major concern of most of our domestic banks is the ballooning of non-performing loans (NPL) on their books. This problem results from a blend of a monitoring system that has broken down and a credit referencing bureau system that is weak.
A consolidation of our banks will facilitate an effective and efficient system of monitoring all credit facilities that are granted to customers and make it easier for credit bureaus to gather accurate data on all businesses and individuals that have been given loans.
Urgent attention
Issues that need immediate attention within the banking sector of Ghana.
1. The most significant issue of concern that needs attention and immediate consideration is that the operational minimum capital for commercial banks, currently GH¢120 million (US$27.9 million at a rate of GH¢4.3 = US$1.0), is too low and should be raised to GH¢500 million.
2. Drastic measures need to be taken to improve the safety of the funds of depositors and their trust in the banking system. This has been a long-standing problem that increases, whenever fraudulent acts result from collaboration between criminals outside the affected bank and some equally criminal staff members of the bank to steal the funds of depositors.
3. Many bank workers show no friendliness and courtesy towards the illiterate and less privileged in our society. There have been numerous complaints from ordinary Ghanaians about how they feel intimidated when they enter a bank and see workers dressed up in suits and ties and working within a flamboyant décor of the banking hall. The dress code of bankers and the way most of them talk intimidate and create a barrier that is a major factor why we still have about 70% of the population unbanked.
Conclusion
I am very confident that if the central bank and its governor implement the recommendations suggested in this write-up, the banking system will experience an unprecedented boost in business, job creation and revenue generation.
The sector would be better placed to support both local and international transactions for the massive economic growth that our economy needs and deserves.
The present and future of the banking/financial sector is in the hands of the governor and his team to implement policies that would improve its performance and restore the financial integrity of the Ghana economy. The right financial environment is key for the private sector and the government to bring economic growth to our country.