Banks struggle over deposits

The operations of some deposit-taking non-bank financial institutions (NBFIs), which promise colossal interest on deposits,are threatening universal banks that have to compete with them for deposits, Managing Director of CAL Bank Frank Adu has said.

“It’s a systemic problem. If you look around you, every bank is running a promotion. If not for the National Lotteries Authority (NLA) which has slowed us down, almost all banks would be running a promotion. The NLA now allows not more than five promos at a time.

“This is because the banks have a challenge raising deposits. One of the major challenges we have is the competition that we have been pushed into with deposit-taking NBFIs. They advertise for deposits at six percent interest per month, and now some government institutions place deposits with them.

“There is no way any bank will pay depositors 6 percent per month, because if the banks lend for 3 percent per month they will be criticised. So we have this challenge whereby we are competing with these NBFIs for deposits.”

There are currently about 225 registered NBFIs and numerous others that are awaiting their certification by the Bank of Ghana. The statutory paid-up capital for both deposit and non- deposit taking NBFIs is currently GH¢7million and GH¢120million for universal banks.

Philip Owiredu, Executive Director of CAL Bank, said the current deposit mobilisation and lending practices of NBFIs have the potential to curb the growth of small- and medium-scale enterprises (SMEs).

“These people mostly lend to the SME sector at very high interest rates. We all talk about the SME sector being the engine of growth, but if we allow the practice to go on and the SMEs borrow at this rate, then we are not going to see the growth.

There are currently about 26 registered commercial banks and about 889 bank branches. Banking penetration currently stands at about 30 percent of the Ghanaian population of 25 million.

The relatively low penetration is attributable to several reasons. Key among them is the multiplicity of bank charges on customer accounts and the lack of products that directly meet the needs of the bulk of the population. Travel distance and the amount of paperwork involved are also among the barriers to adopting banking services.

Government earlier this year re-imposed a five percent stabilisation levy on banking and other sectors over an 18-month period to raise an amount of GH¢88million to increase government’s revenue. This, Mr. Owiredu noted, calls for measures to ensure that universal banks can raise enough deposits for their operations.

“We need to ensure that regulations work. We need to ensure that there are policies in place to ensure that the commercial banks are able to raise funds to be able to support the economy,” Mr. Owiridu said.