Icebergs in bank numbers: Health vigilance beyond pricing

As Ghana’s banking sector approaches the crucial milestone of publishing financial results by the end of April 2024, it's essential to remember that these figures are not mere numbers but a measure of the health of our financial institutions, which is the backbone of our nation's economic prosperity.

Financial results of banks offer valuable insights for informed financial decision making. By understanding the financial health of banks, you gain a clearer picture of factors that may impact your financial stability and operations.

Neglecting to carefully examine banks’ financials can seriously affect individuals, Small to Medium Enterprises, and large Corporations. At this time of global economic uncertainty, making a decision on a bank solely based on lower interest rates when borrowing and higher interest rates when investing may present undesirable outcomes in future.

It is important that you make your financial decisions based on the total health of the bank and not only on pricing. It is easy to be swayed by the promise of lower borrowing costs and higher interest rates on deposits, but this narrow focus on pricing overlooks a fundamental truth - the financial health of banks is the bedrock of economic stability.

Imagine a ship navigating treacherous waters. The visible tip of an iceberg may promise immediate gains, but below the surface lies a vast and potentially hazardous structure. Similarly, while pricing may attract attention, a bank’s financial health determines its resilience in times of crisis.

Past events in the banking sector serve as valuable lessons. Instances of financial crises, bank failures, and regulatory challenges highlight the need for heightened vigilance and proactive risk management. Companies, especially those in key sectors, should maintain a keen interest in the banking sector’s performance to anticipate and navigate potential challenges.

The global financial crisis of 2008 serves as a stark reminder of this. Over 500 banks worldwide succumbed to unchecked risks and unsustainable practices. Closer to home, Ghana's banking sector faced a similar reckoning during the cleanup of 2017-2019. Weak governance, insufficient reserves, and toxic loans threatened the very fabric of financial stability. The aftermath required drastic measures, such as mergers, closures, and regulatory scrutiny, to restore trust and stability.

In the unpredictable waters of global finance, dangers often lurk beneath the surface. However, even as we weathered these storms, new challenges emerged. The COVID-19 pandemic tested the sector's resilience, prompting swift actions like loan restructuring. Ghana's recent Domestic Debt Exchange Program further highlighted vulnerabilities, emphasizing the need for vigilance and reform. "The banking sector is the lifeline of our economy, and its stability is paramount," remarks Economic Expert John Smith.

"As individuals, businesses, and policymakers, we must delve deeper," as advised by Banking Consultant Sarah Johnson. "Evaluate financial reports, seek expert counsel, and engage in informed discussions about sectoral resilience." So, what can we do? Start by paying attention. Review banks' financial reports, ask questions, seek expert advice. Understand the risks and opportunities that come with banking relationships. Don't just focus on interest rates or fees; look deeper, beyond the surface.

It is incumbent on every stakeholder – individuals, businesses, investors, and regulators – to take an active role in assessing and safeguarding our banks' financial soundness. Let's not wait for the tip to melt; let's dive beneath the surface, examine the numbers, and ensure a solid foundation for our economic future. Together, we can ensure a resilient and thriving banking ecosystem for generations to come. The time for financial vigilance is now. We cannot repeat past mistakes; it's too early to forget.