Banks muscled-out in deposit-race

Banks are being muscled-out by government in the race for deposits, as savers and investors are increasingly drawn to Treasury bills which pay lucrative interest rates, says Managing Director of Societe Generale Ghana Gilbert Hie.

Record budget deficits and the continuous steep fall of the cedi have doubled yields on government debt since 2012, creating a situation in which the state is crowding-out every other entity in the market for funds.

From 4 percent of GDP in 2011, the public deficit has climbed to 11 percent of GDP, with the local currency weakening by more than a third in less than two years. The central bank has responded with interest-rate hikes that have pushed up the cost of government borrowing.

Sharing what he believes is an industry-wide sentiment, Mr. Hie said it has become more difficult to attract deposits because banks are in clear competition with government securities.

“It is a general sentiment in the industry because banks cannot afford to pay 25 percent to customers, especially when the base rate is 22 percent. All Ghanaians can buy T-Bills, which pay 24.5 percent interest; and if we want to take deposits from people, they can make an arbitrage and say the banks will not pay that much. So they go to the government with their money. It is a bigger competition for us.”

According to Bank of Ghana data, the growth of bank deposits slowed in 2013 to 19.2 percent from 22.5 percent in 2012, and Mr. Hie suggests the year 2014 is showing a similar trend.

His own bank posted a decline in growth of deposits from 37 percent in 2012 to 7.8 percent last year. SG’s deposits increased from GH¢625.8million in 2011 to GH¢859.1million in 2012, before growing by a smaller amount to GH¢926.1million in 2013.

Speaking at Facts behind the Figures, the Ghana Stock Exchange (GSE)’s forum for listed companies to interact with investors, Mr. Hie said the art of banking is to be able to cope with the new situation and face new challenges.

He said 2014 will be a more difficult operating year for the bank, but added it will apply shrewd management to increase its profits.

“Our special strategy will be less expansion and more care and attention to risk, because the cost of risk is very important. We will also manage all our other running costs. If our net banking income is not increasing the way we expect it to, we have to be more attentive, tougher and stringent to have a good profit performance.”

Touching on the dwindling confidence of investors in the economy, Mr. Hie said what needs to be done to restore confidence, especially among foreign investors, is to quickly restore the macroeconomic balances and cut the fiscal deficit.

“Any kind of business with 15 percent inflation and more than 20 percent depreciation of the currency is very difficult to operate,” he said, adding that the country’s binge spending on imports must be curtailed.

Discussing highlights of the bank’s performance in 2013, he said total operating income jumped by 31.3 percent from GH¢127.3million to GH¢167million, while net profit improved from GH¢30.3million to GH¢36.4million

SG’s total assets increased from GH¢1.09billion to GH¢1.22billion, while its share price grew from a stable 2012 average of GH¢0.45 to GH¢0.75 in December 2013. The share opened trading on Tuesday at GH¢0.83.