Banks are financial intermediaries that accept deposits from surplus spending units and channel these in the form of loan products to deficit spending units in the economy.\u00a0The business of banking started in the then Gold Coast during the colonial era with the aim of providing financial services to the British enterprises\u00a0 and the\u00a0 colonial\u00a0 administration.<\/p>\n
In\u00a0 1896,\u00a0 the\u00a0 Bank of\u00a0 the British\u00a0 West\u00a0 Africa\u00a0 (which later\u00a0 became Standard\u00a0 Chartered Bank in 1985)\u00a0 opened its\u00a0 first branch in Accra.\u00a0The success of the\u00a0 bank attracted other foreign banks to begin operations in the then Gold Coast.\u00a0The Colonial Bank for instance started its operations in 1918 and later merged with Anglo-Egyptian Bank, the National Bank of South Africa and Barclays Bank and became known as Barclays Bank.<\/p>\n
The Bank of the British West Africa and Barclays Banks were the only banks operating in the Gold Coast during the period, 1920 – 1950.The Ghana Commercial Bank was established in 1953 as the first indigenous bank to reduce the control of the banking sector by the two expatriate banks.<\/p>\n
Immediately after independence in 1957, the Bank of Ghana was established to take control over the management of the country\u2019s currency. By 1974, many state-owned banks and Development Financial Institutions (DFI) had also been set up to enhance the financial sector by providing services,\u00a0 otherwise\u00a0 ignored\u00a0 by\u00a0 the\u00a0 commercial\u00a0 banks.\u00a0 Examples\u00a0 included\u00a0 the\u00a0 National Investment\u00a0 Bank,\u00a0 Agricultural\u00a0 Development\u00a0 Bank,\u00a0 Bank\u00a0 for\u00a0 Housing\u00a0 and\u00a0 Construction, Merchant Bank, the Social Security Bank. The DFIs raised finance through deposit mobilization, government\u00a0 support\u00a0 and\u00a0 foreign\u00a0 loans\u00a0 and\u00a0 were\u00a0 involved\u00a0 in\u00a0 providing\u00a0 commercial\u00a0 and development banking services.<\/p>\n
The reforms experienced in the financial sector and the enactment of the banking law in 1989(PNDC Law 225) saw the operations of a number of locally incorporated banks, including the Meridian (BIAO),\u00a0 The Trust Bank,\u00a0 CAL Merchant Bank, Allied and Metropolitan Bank and Ecobank. There was too much government control in the financial sector after independence.<\/p>\n
Banks that were set up between the 1960s and the 1970s were either wholly or majority owned by the public sector.\u00a0 In 1992, however, Government began to privatize some of the state owned banks and the liberalization of the financial sector led to the entry of a number of foreign banks into\u00a0 the\u00a0 banking\u00a0 industry\u00a0 as\u00a0 well\u00a0 as\u00a0 an\u00a0 increase\u00a0 in\u00a0 the\u00a0 number\u00a0 of\u00a0 domestic\u00a0 banks.<\/p>\n
The liberalization\u00a0 of\u00a0 the\u00a0 financial\u00a0 sector\u00a0 under\u00a0 the\u00a0 Financial\u00a0 Sector\u00a0 Adjustment\u00a0 Programme (FINSAP) and Financial Sector Strategic Plan (FINSSIP) also brought about improved savings, enhanced deposit mobilization, financial deepening, and competition in the banking industry. However, lending rates were high with wider spread between deposit and lending rates.\u00a0\u00a0 The\u00a0 introduction\u00a0 of\u00a0 the\u00a0 new Banking Act\u00a0 in\u00a0 2004 also\u00a0 led\u00a0 to\u00a0 the\u00a0 elimination\u00a0 of\u00a0 secondary reserves and adjustments in the minimum capital. The minimum capital was initially increased to GHS 60 million in 2007 and then in 2013 it was increased to GHS 100 million.<\/p>\n
The new Act also saw the introduction of the Universal banking license, which allows banking to provide various forms of banking services. Mergers and acquisitions of some banks also emerged largely on account of the surge in the minimum capital requirement with recent examples including Access Bank and Intercontinental Bank, Ecobank and TTB Bank, and HFC Bank and Republic Bank of Trinidad and Tobago. Currently, there are 27 universal banks operating in the country with 16 foreign-owned and 11 Ghanaian-own, with 6 banks holding more than half of the total assets of the sector.<\/p>\n
Clearly, there are significant implications about the changes in the Ghanaian banking sector for the economy over the years. First of all, the influx of foreign banks, especially from Nigeria, has led to intense competition in Ghana\u2019s banking industry, with respect to size of deposits and the size of market share of the various banks. There are currently seven Nigerian banks operating in Ghana representing about 26% of the total number of banks in the country.<\/p>\n
The high presence of Nigerian Banks in Ghana has been occasioned by the ECOWAS protocol and the favourable economic environment in Ghana as well as the relatively high minimum capital requirement for banks operating in Nigeria. It is however important to recognize that the level of competition in the Ghanaian banking sector has a causal effect on the level of efficiency and we have seen some appreciable level of improvement in service delivery and efficiency across the various banks in the\u00a0 country.<\/p>\n
Again,\u00a0 the\u00a0 competition\u00a0 in\u00a0 the\u00a0 banking\u00a0 industry\u00a0 has \u00a0also\u00a0 led\u00a0 to\u00a0 technological innovations with the introduction of automated teller machines (ATMs),\u00a0 e-banking, telephone banking,\u00a0 SMS\u00a0 banking\u00a0 etc.\u00a0 These technological innovations\u00a0 have\u00a0 contributed\u00a0 largely\u00a0 to deepening banking services in Ghana. The influx of new banks into the banking sector has also increased the level of offshore funds, which have been brought in to support credit creation in the sector.<\/p>\n
One important function of foreign\u00a0 banks\u00a0 is\u00a0 the\u00a0 injection\u00a0 of\u00a0 overseas\u00a0 capital\u00a0 into\u00a0 the\u00a0 economy,\u00a0 thus\u00a0 allowing\u00a0 for\u00a0 the generation of more investment funds to spur production and growth. In essence, foreign loans help loosen the constraints on domestic savings and investments.<\/p>\n
The recent competition has also changed banks\u2019 approach to dealing with Small and Medium Enterprises (SMEs). Most banks have now set up SME desks in order to concentrate and provide specialized banking services to SMEs. However, these SME outfits are not really doing anything different from what pertains in\u00a0 corporate\u00a0 banking.\u00a0 Lending requirements applicable to large corporates still apply.<\/p>\n
Therefore, more work needs to be done in terms of improving banks\u2019 appreciation\u00a0 of\u00a0 the\u00a0 peculiar\u00a0 challenges\u00a0 confronting\u00a0 SMEs\u00a0 and how to\u00a0 fashion\u00a0 out\u00a0 products targeted at addressing those needs. Banks should also consider providing advisory services to SMEs through their SME departments. Most SMEs may not really require loans but advice on how to manage their financial resources.<\/p>\n
Mergers and acquisitions prompted mainly by the increase in the minimum capital requirement of banks to GHS 100 million have also created larger banks with huge capital base or balance sheet\u00a0 to\u00a0 finance\u00a0 major\u00a0 deals,\u00a0 with\u00a0 implications\u00a0 for\u00a0 increasing\u00a0 GDP growth.\u00a0 Increasing the minimum capital is also useful in the sense that\u00a0 banks are\u00a0 better\u00a0 cushioned against\u00a0 possible losses from credit and liquidity risks. Larger banks are generally more capable of withstanding the shocks confronting industry.<\/p>\n
The downside of the changes that have occurred in the banking sector over the years particularly from the early 1990s is\u00a0 the\u00a0 high interest\u00a0 rate\u00a0 spread suggesting high\u00a0 lending rates\u00a0 and low deposit rates. Low deposit rates tend to discourage savings by the public In the presence of low deposit rates of banks relative to the rates of other instruments, investible funds are likely to find their way to other investment vehicles such as government treasury bills and thus reduce savings mobilization.<\/p>\n
On the other hand, high lending rates do not only impede access to credit but also increases default rate of those who borrow at the high rate. Thus, despite the various reforms and policy initiatives in the Ghanaian banking industry aimed at improving efficiency in the industry in order to curtail interest rates, banks continue to exhibit high interest spreads and the high inflation rates also tend to compound the situation.<\/p>\n
It is important for regulators to ensure that the banking sector remains competitive so as to curtail a high interest spread. There is the need to balance the requirements to maintain certain levels of capital adequacy and reserves to promote financial safety against the need to reduce the bank net interest margins. The need to keep inflation within reasonable levels is paramount since the level of inflation tends to feed into bank interest spreads. In this regard, a persistent effort to reduce the current high levels of government budget financing will go a long way to reduce inflation and ultimately bank interest spreads.<\/p>\n
<\/p>\n
By: International Institute for the Advanced Study of Cultures, Institutions, and Economic Enterprise<\/strong><\/p>\n Email: info.interias@gmail.com <\/strong><\/p>\n Office: +233-28-107-4256\u00a0<\/strong><\/p>\n <\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" Banks are financial intermediaries that accept deposits from surplus spending units and channel these in the form of loan products to deficit spending units in the economy.\u00a0The business of banking started in the then Gold Coast during the colonial era with the aim of providing financial services to the British enterprises\u00a0 and the\u00a0 colonial\u00a0 administration. […]<\/p>\n","protected":false},"author":27,"featured_media":126455,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[19],"tags":[8,4],"yoast_head":"\n