Banking and Finance
Ghana’s banking and finance industry is well-capitalized, profitable and liquid. There are currently 26 private banks operating in Ghana. Bank of Ghana is the government-run body that provides regulatory oversight for the industry. Under Bank of Ghana, the industry’s major financial institutions include:
- Ghana Commercial Bank, with an operating budget of about $1.8 billion
- Barclays Bank, with an operating budget of about $1.3 billion
- Standard Chartered Bank, with an operating budget of about $1.3 billion
- Ecobank, with an operating budget under $1.3 billion
- Stanbic Bank, with an operating budget under $1.3 billion
- Merchant Bank, with an operating budget under $1.3 billion.
In 2003, Bank of Ghana introduced the Universal Banking Business License, which brought competition into the industry by increasing the minimum net worth required of banks. Over the next few years Bank of Ghana put further structures in place to aid the growth of the industry. They injected a large amount of cash into the industry to support future growth, and reduced borrowing rates allowing banks to lend at better rates to their customers. As a result of these measures, the industry has grown significantly in the past several years. Eight new banks entered the market since 2005, mostly sub-Saharan and Asian chains.
Since 2007, much of the growth has focused on expansion within the industry and improvement of products and services offered to customers as opposed to new players coming in. Barclays Bank Ghana Ltd., for example, has expanded from 26 to 90 branches in the past three years, including their first offshore bank. Other banks have seen similar expansion in recent years. As competition increases, banks have been motivated to provide better services to customers by introducing new products and expanding their service hours.
In 2009, Bank of Ghana instituted a check line coding system which further improved bank services by making it possible for checks to clear in as little as 24 hours. Although the average is currently three days, this is much faster and more efficient than it was before.
Creative Product Offerings
Development of creative financial solutions and products is another lucrative investment opportunity. With a growing class of middle income earners who do not utilize bank services, there is more demand for a variety of accessible products and solutions for people to manage their money.
Demand is high for effective ways to make international transactions and transfers. As more Ghanaian businesses enter into the global economy, they will be looking for ways to conduct international business transactions easily and efficiently.
Continuing to expand their product offerings toward targeted markets will enhance growth within the privately owned banks and help them to draw in the large numbers of potential customers who do not currently utilize banking and/or financial services. The most recent marketing trends in the industry have been targeting children and teens for bank products, such as savings accounts with the intention of encouraging financial habits of saving and beginning long-term relationships with customers at a young age.
With the industry trying to move away from a cash-based system, there is significant demand for alternative payment methods. Several major banks now offer Visa debit cards with savings and checking accounts, and ATMs widely accessible in most areas. Although the use of debit cards is increasing with regards to ATM transactions, there are a limited number of places where they are accepted as payment, such as high-end hotels, large grocery stores, and international chains.
In 2008, Bank of Ghana rolled out E-Zwitch, a biometric smart card that allows individuals to send/receive money and make electronic payments. Other electronic solutions are emerging from telecom companies like MTN and Zain. These products are aimed mostly at making simple transactions and money transfers via cell phones.
Credit solutions remain quite limited due mostly to structural issues and risk factors. The industry has lots of room to grow in facilitating global transactions, transfers, payments and purchases. These services are in extremely high demand, but the banking industry in Ghana does not yet support.
As the industry heads toward establishing a functional credit system, there is a need to establish local credit reference bureaus to track borrowers' credit histories. Comprehensive credit information is crucial to reduce the risks associated with issuing credit to the general public. So far, there are no systems in place to collect and maintain this information on Ghanaian borrowers. This lack of credit reporting severely limits Ghanaian banks’ ability to provide comprehensive credit services to customers.
A major challenge for many Ghanaian banks is to strike a balance between risk management and growth. Because banking is such a high-risk industry, banks must be sure that they have systems in place to mitigate risks while still offering quality services. Ghana lacks the types of structured systems that make it possible for banks to track borrowers’ identification and credit history and this makes it difficult to verify the legitimacy of transactions, minimize fraud, and track down customers that have defaulted on payments.
Certain risk reducing policies have been implemented by Bank of Ghana such as the Know Your Customer (KYC) policy which requires banks to gather and verify detailed customer information before opening new accounts. Even with these measures in place, banks still face significant risks when lending to clients.
The government and the legal system also play an important role in reducing the high incidence of fraud in the industry. Governmental and legal representatives have recently made public commitments to the banking industry to aid and assist in this area by providing a fair and transparent prosecution system. Banks can also aid one another by diligently monitoring customer activities and sharing and verifying information when large transfers made between banks.
Many banks are unable to balance certain uncontrollable costs in order to facilitate growth. Staff wages, for instance, are difficult to control because many bank employees have unionized. As unions demand higher wages, banks have no choice but to meet these costs or limit personnel growth. Individual banks must put their own structures and regulations in place to control these costs. Bank of Ghana also does its part by monitoring and regulating cost control throughout the industry.
- Highly-skilled human resource base – Because banking and finance services are relatively stable, high-yield industries, banking and finance are popular courses of study at Ghana’s major universities and graduates are lining up to apply for banking and financial service positions. As the global financial crisis crippled financial institutions in Europe and the United States, some Ghanaians working abroad in the banking and financial industry have returned to Ghana to seek work in the local industry.
- Bank earnings – interest rates are relatively high which means that banks earn significantly more income from lending activities.
- Robust justice system – specialized courts resolve commercial cases and a good regulatory environment exists.
- Economic and political stability – a history of stability make Ghana an attractive country for investment
Direct investment opportunities that exist within the industry include:
- Bringing in new banks
- Investing in existing banks
- Purchasing shares in banks operating in Ghana
Because the industry has a positive outlook backed by significant growth over the past 10 years, these opportunities represent good financial opportunities for investors.