Conditions to Improve

May. 22, 2018

Regulatory efficiency permitting, the financial sector stands to piggyback on potentially broader economic advances ahead.

The Ghanaian financial sector's trajectory mirrors broad economic moves to galvanize national growth. The Ghana Investment Promotion Centre (GIPC) Bill of 2013 sought to boost local competitiveness per se to meet changing economic dynamics. Oil production, estimated to reach about 200,000bpd in 2018, stands to resonate across the financial spectrum from insurance to banking, and ultimately the capital markets.


Ghana's GDP breakdown favors the services sector, including finance, printing at 54% in 2016. And as millennials boost the middle class, the financial services industry must respond.

Solid Foundations
Ghana's economy grew by 6.6% and 9% in 1Q and 2Q2017, respectively. Relative economic stability, too, reflected in the banking sector's 2016 return on equity, which shed just 0.5% in contrast to the hefty 28.5% fall of 2015. The Bank of Ghana (BoG) champions a risk-based capital management model for the financial ecosystem. This results in sound financial institutions and secure investors and depositors of long-term positive economic impact. To improve the quality of risk management, corporate governance, and internal control practices in the banks, BoG is contemplating Basel II/III Capital Framework introduction. A dynamic period ahead is foreseen, as BoG requires the banking system to raise close to USD2 billion in additional risk capital. This, Ben Ahiaglo, Executive Director of SAS Finance Group, argues, and perhaps accelerated by buoyant business confidence, “will trigger activity in mergers and acquisitions and the entry of international and pan-African banking groups and financial investors." BoG formally introduced the Universal Banking Business License (UBBL) with stipulated minimum requirements in 2003 to encourage competition. Banks are required to hold 9% of their local currency and FX deposit base with BoG as primary reserves and 35% in cedi-denominated assets as secondary reserves. Currently, the minimum capital requirement for a bank is GHS120 million.

Skewed Credit

2016 saw most banks adopt risk-averse lending practices to counter non-performing loans (NPLs). Earnings from loans and advances claimed 56% of the industry total, down from 64% in 2015. And reflecting persistent economic realities, while agriculture accounts for 20% GDP, its informal nature curbs related bank lending, prompting the rise in alternative platforms, such as mobile. The high cost of capital has also dented credit to the manufacturing sector, while more conducive demographics continue to favor the construction industry, where the perception is that it has a relatively low default risk. That being said, credit facilities are regularly backed by landed properties and the domiciliation of proceeds from the rental of the property or government projects. Total related loans and advances exceeded GHS2.3 billion in 2016 (2015: GHS2 billion). Encouragingly, BoG's confidence survey of October 2017 indicates improved business and consumer confidence in the economy, which bodes well for sector activity.

For 3Q2017, bank credit to the private sector grew YoY, albeit at a slacker pace, up 9.4%, which the latest BoG credit conditions survey explains as reflecting a system-wide tightened credit stance. As of October in fact, the banking sector boasted liquidity and solvency, despite a stubborn NPL ratio, down to 21.6% at end-October from 21.9% in August 2017. Total assets climbed 20.5% YoY in October to GHS88.9 billion, down from the previous year's 23.7% march for the same period. Growth chiefly reflected a YoY rise in deposits of 18.2%. Encouragingly, the sector's capital adequacy ratio (CAR) averaged 15% at end-September 2017 and greatly exceeded the stipulated 10% requirement.

Fresh Blood

In 2016, BoG doled out new universal banking licenses to four entities: Sovereign Bank, a full service bank, incorporated in October 2015; Premium Bank, the erstwhile City Investments Company Limited; OmniBank, the former Union Savings and Loans; and specialist mortgage finance institution Ghana Home Loans, formerly operating as a non-bank financial institution, but as of 3Q2016 became a full service bank. These arrivals elevated the sector total to 33 licensed banks as of end-2016, of which 16 are locally owned and 17 foreign controlled. Subsequently, an additional two universal banking licenses were given to Construction Bank and Beige Capital. In 2016, total sector assets rose 28% from 2015. Yet some sector players argue that the field is already too crowded, urging a moratorium on further licenses in a nation of 26 million people.


In a bullish move in late 2017, Vice President Dr. Mahamudu Bawumia declared that in 2018 all Ghanaians would receive a bank account to pave the way for a digital economy. How this will pan out is anyone's guess at this stage. Thus far, while around 20% of adult Ghanaians have a mobile money account, half of those lack a bank account. Digitalization, too, widens banking reach, while reducing operational expense. Legislation has addressed public concerns, and the Deposit Protection Bill of July 2016 safeguards depositors from “unforeseen circumstances." Meanwhile, the Banks and Specialized Deposit-Taking Institutions Act of the same year enables better oversight over non-bank financial institutions, while advancing financial consumer protection. Indeed, a Financial Inclusion Technical Committee launched in August 2016 has formulated a strategy to meet the ambitious national target of full financial inclusion by 2020.

Capital Markets

The Ghana Stock Exchange (GSE), established on November 26, 1990, is regulated by the Securities Industry Law 1993. A limited equities playing field sees around 30 listed stocks serviced by 10 brokerage firms. The GSE Composite Index shed 15.33% for 2016, dragged southward by a grim outing for listed banks. The MCap of listed securities at YE2016 was GHS52.7 billion, down 7.75% YoY from GHS57.1 billion. The dilemma, according to Ahiaglo, is that, “Multinationals such as MTN Ghana, Vodafone Ghana, and Nestlé, the largest corporates in the country, are not listed on the GSE (while) the local subsidiaries of Nigerian banks here, such GT Bank, one of the largest on the continent, are listed in Nigeria but not in Ghana." Predictably, investors veer toward treasury bonds amid a dearth of activity. The bourse has for some years contemplated a Ghana Commodity Exchange (GCX). The resulting public-private-partnership initiative seeks to transform a largely agricultural economy into a diversified one, not least in the advent of oil discovery.


From a low base, Ghana's insurance has seen yearly average growth of 36.7% and is poised to support the national savings and investment environment for individuals and corporates. Penetration, at around 2%, remains below the African average of 3.5%. Moreover, systemic “leakage is another problem," says National Insurance Commission (NIC) Commissioner Justice Yaw Ofori. “For example, about 36% of Ghanaians have some form of insurance, while around 30% of all vehicles on the roads are not insured." The Insurance Industry rests upon the Insurance Act 2006, ACT 724, which grants greater regulatory weight to NIC. The act prohibited composite insurance companies, whereby those active in life and non-life branches had to form separate firms by December 2007, spiking competition. Further legislation, long in the making, may materialize in 2018. ✖