SURVEY - GHANA: Bankers laugh all the way to their banks

Ben Gogo, the deputy managing director of Ghana's Social Security Bank, is a little fed up with being told he is doing too well.

"When you have a regulatory regime that locks in nearly half your money, and when the T-bill rate is increasing through no fault of yours, why am I being criticised for making money in a difficult time?" he asks.

"It's not as if we go to sleep and money falls in our laps. It's a hard task working in this environment - the uncertainty is real."

The reason for his defensiveness is clear. As Ghana faces the triple crunch of high oil prices and low gold and cocoa prices, and many companies are struggling to stay afloat, there is a growing sense of frustration because the banking sector appears to be making such healthy profits.

According to Databank, which tracks stock market results, SSB reported half year profits after tax of 37.7bn cedi - almost double last year's figure of 20.1bn cedi. Ghana Commercial Bank did even better, with half-year profits after tax of more than 57bn cedi, compared to under 20bn cedi last year, with earnings rising 193 per cent.

Meanwhile, customers are queueing up for weeks for foreign exchange or turning to the black market and being punished by high interest rates. "The bankers are laughing all the way to the bank," says a disgruntled Andrew Quayson, head of the Ghana Association of Industries.

Many suggest the reason for this success is simple - 91-day T- bill rates which in July rose to more than 40 per cent and have not fallen much since, offering (even accounting for inflation which is now more than 30 per cent) an easy source of risk-free return. The margins between deposit rates and lending rates have also remained very large, well over 10 per cent.

But that might be unfair to a sector that has undergone some important restructuring over the past few years, since the central bank ended the practice of the government banking with the commercial sector and then having to borrow back its own money at vast expense.

According to Databank, Ghana Commercial Bank has recovered a substantial amount of bad debt, and is expected to cut the number of staff by 30 per cent by the end of the year. (It is due to be privatised in 2001).

SSB's results, it said, was "driven by an improvement in the bank's trade financing activities and adherence to strict control measures" and rode "on the wings of its restructuring programme".

The large multinationals - Standard Chartered and Barclays - have been trimming their low value customers, and across the board there has been a notable improvement in the quality and range of services being offered to top-tier clients.

A recent IMF analysis of the banking sector - which it refuses to release to the public, causing some upset among those who are calling for more open debate - concludes that the sector is essentially sound. The closure of three smaller banks this year has not been seen as cause for alarm.

Nevertheless, both the IMF and other analysts are asking questions about how much longer the situation can last.

For a start, when examined in dollar terms rather than in cedis (which have lost half their value), the banks' profits begin to look a little less impressive.

There is also a growing feeling that with customers borrowing at 45-50 per cent, the sector is opening itself up to a spate of bad debts in the coming months. And government arrears to local contractors are in the hundreds of billions of cedis.

Standard Chartered's loan book "needs serious scrutiny and vigilance" according to Databank - even though it is likely to remain "the most profitable bank in terms of return on equity". Bankers reply that there is more elasticity in the market than people imagine - and that customers are factoring in their extra costs.

But another important cause for concern is the banks' large exposure to the oil sector, which certainly has not reflected rising international oil prices in the cost to the consumer.

"These profits are not real - they are inflationary," says one well- known financial operator, who preferred not to be named. "We are going to see some very dramatic adjustments taking place."

In the midst of this, some are blaming the central bank governor, Kwabena Duffuor, for allowing the cedi to remain so stable in 1998 (a decline of only 4 per cent), thus making the past year's shock all the more hard-felt.

But Mr Duffuor defends his record strongly, saying that the 1998 stability was far more a reflection of improving fundamentals than any central bank interference - and that he can hardly be blamed for the extraordinary fall in Ghana's terms of trade in recent months.

"I had got T-bills down to 24 or 25 per cent; when I arrived they were 42.8 per cent," he says. "But when we were hit by the shock, the pressure mounted. What can you do?" He adds that there have been unrecognised improvements over the past three months, and that the financial sector remains "very strong".

Certainly few people see the main banks as threatened in any serious way.But unless the economy improves dramatically, 2001 may see some chickens coming home to roost.