Traditional banks facing stiff competition - Survey

Accra, June 9, GNA - The Ghana Banking Survey 2008 has shown that the traditional banks are losing out as competition in the industry deepens, triggered by aggressive new entrants.

The survey, based on the financial results of the banks last year revealed a squeeze in profit across board with the big banks the major losers, although it said performance in the industry on the whole was creditable.

The survey, a collaborative work between PriceWaterHouseCoopers and the Ghana Association of Bankers, indicated a high deposit level for the industry with the new banks accounting for the greater chunk. This year's survey looked at deposits, profitability, cost to income ratio and asset quality. It is on the theme: "Raising the Bar - Increase in the Minimum Capital Requirements and its Implications for the Industry."

Presenting a brief of the outcome, Mr. Vish Ashiagbor, Partner PWC, said the banking industry saw an appreciable growth in deposits, loans and advances as well as improved portfolio management and asset quality in 2007.

He said the various regulatory changes undertaken by the Bank of Ghana, such as universal banking and review of secondary requirements, among other things, had helped to strengthen the environment and made the sector robust and vibrant.

As regards the cost income ratio as a measure of operational efficiency, Mr Ashiagbor said the rate was going up in most banks while few banks showed declining ratio with increase in profitability levels. Besides, asset quality had also seen major improvement a lot healthier than in 2003.

Mr Ashiagbor said the success in the industry would depend on creativity of the banks and a hard eye for opportunities, adding that any slip on the part of the players would be costly. Launching the survey, Dr. Paul Acquah, Governor of the Bank of Ghana, said banks in the country needed a sound capital base to build the capacity for financing bigger projects and volumes of trade without posing risks to financial stability.

"The regulatory capital provides a cushion for absorbing potential losses and as such is a critical component for ensuring the safety and soundness of the financial system," he said.

Dr. Acquah said the increase in the minimum capital requirement was to provide a safeguard against shocks and ensure that the banking system was operating in a safe and sound environment.

While the range of financial services had broadened with innovation, he said, the potential for expanding loan portfolios and providing sophisticated financial services was being constrained by the low capital base of the banks.

Total shareholders funds for the 25 banks stood at approximately GH¢870 million at the beginning of the year. This figure compares with the annual syndicated short-term loan of some 800 million raised on the international capital market for the purchase of cocoa. "The economy is becoming increasingly complex and high value financial transactions are likely to result in the near future. While these developments are opening up opportunities for banks, they are also exposing banks to higher risks," Dr. Acquah said.

There is, therefore, the need for strong and resilient banks that were prepared to take on big deals both locally and internationally. "It should be possible for Banks in Ghana to grant loans to finance projects abroad in competition or in syndication with other global players," he said, and added that the time to inject capital was now to enable banks meet the opportunities and challenges that had come along with reforms.

He said the Bank of Ghana would continue to pursue policies and programmes aimed at developing a vibrant financial system capable of harnessing financial resources for the development and growth of the economy.

Mr. Charles Egan, Country Leader PWC, said 2009 was going to be an exciting time for the industry as they tried to meet the stringent requirements of the International Financial Reporting Standards (IFRS), comply with Basel II accounting standard and meet the minimum capital requirements of the Bank of Ghana. He said within the short timeframe the banks must deal with putting the right systems in place to capture data and train staff to meet the requirements.

Mr. Egan said PWC would hold a stakeholders forum on the readiness of the banks on the implementation of the IFRS and Basel II.