How strong are our banks?

In recent months, l have heard and read about genuine concerns expressed about the “banking sector” in Ghana. The sad reality, however, is that most of the concerns are based on activities undertaken by people whose aim is to do anything but banking!

So, the concern may be genuine but the activity is a complete swerve. Let me explain further.

In most of the cases that l have read about or listened to on radio, “concerned citizens” have expressed worry over individuals that have set up stalls and operating “money collecting” schemes under a deposit mobilisation initiative that promises abnormal interest rates, largely.

The trick is that it works because people are always eager to latch onto opportunities that would help them grow their money, no matter how surreal they might appear.

Yes, the talk here is about the operations of the charlatans who disguise their schemes as fan clubs and keep fit networking associations, meanwhile, the only thing that they keep fit is their pockets and the best fun is when they are laughing after succeeding in duping you, and you are crying for losing money.

These companies are certainly not microfinance companies, for they are not registered as such, and therefore are not licensed by anyone to operate a business of that sort.

They only give the banking sector a bad name and their “collapse” (when they finally bolt with clients’ money), suggest an industry that is failing.

But as long as they are involved in deposit taking, promising interest payment and undertaking activities as if they were banks, the public is moved to believe that they have some legitimacy.

Where they have succeeded in duping the public, after escaping the strong surveillance activities of regulators, their deeds then affect the confidence in the banking sector.

Understandably so because many do not know the difference, or perhaps pretend not to know the difference, between the regulated institutions given the approval to operate banking services and the crooks whose aim is to dupe unsuspecting and uninformed members of the public.

So how do you find the good ones? Well, it is not difficult at all because as at July 2016, the banking sector had 30 banks, with 1,173 branches and 912 Automated Teller Machines (ATMs) distributed across the 10 regions of the country.

These institutions are supported by several properly licensed microfinance companies, rural banks, financial NGOs, money lenders and other financial intermediation entities, all well licensed and supervised.

The other interesting story is in the latest Financial Stability Report (FSR) by the Bank of Ghana, released on November 8. In this report, the banking sector regulator opines that “The banking sector recorded a growth in total assets of 24.6 per cent year-on-year to GH¢67.0 billion as at the end of July 2016, up from GH¢53.8 billion in July 2015 (21.7per cent y/y growth)”.

Largely encouraged by improvement in key economic indicators, notably the stabilisation and somewhat appreciation of the local currency, cedi, banks recorded growth in foreign assets, which increased sharply to 35.0 percent in July 2016, from 12.9 per cent growth recorded in July 2015.

“The higher growth rate was also on account of an increase in banks’ investment portfolio over the period. Domestic assets, on the other hand, went up by 23.7 percent year-on-year to GH¢61.1 billion at the end of July 2016 compared, with the 22.5 per cent growth recorded for the same period in 2015”, the report stated.

A strong financial sector is a precondition for economic growth, and therefore, the economic managers have always made strengthening it a top priority.

In fact, the primary objective of the Bank of Ghana is to pursue sound monetary policies aimed at price stability and creating an enabling environment for sustainable economic growth, with the other tasks being that of promoting and maintaining a sound financial sector and payment systems through effective regulation and supervision.

Impact of wrong borrowing habit

In plain language, under some conditions, right-sizing your payments on loans by securing them appropriately and from the best sources could save you money –and make you money- even when you are not investing much. So, the adverse effect could be dire for you, the individual.

Well, the other side also is that when you borrow and you are not able to pay, you create problems for the banks too. The bank and customer are so much connected that problems affecting one could easily extend to the other.

In the latest FSR report, the poor borrowing habit of all of us was highlighted and l read that with shame. With shame because we want the banks to do more by making credit, not only available, but cheap too, yet, the determination of some not to pay back what they borrow is as strong as an atheist’s resistance to Christ!

Even though some reasons, such as the general slowdown in the economy, increasing cost of production due to high utility tariffs and loan portfolio reclassification by some banks were attributed to the worsened Non-Performing Loans (NPL) ratio, there is no doubt that the little that we all borrow and refuse to pay on time or not pay at all has an impact too on this.

Again, according to the report, the sector’s capital-at-risk (NPL net of provision to capital) worsened from 26.5 per cent at end-July 2015 to 36.4 per cent at end-July 2016, with loan loss provision to gross loans also increasing from 6.6 percent in July 2015 to 8.2 percent in July 2016.

Well, overall, the performance of the banking sector, as the report noted, remains strong, despite marginal declines in some financial soundness indicators, measured in terms of earnings, portfolio quality and efficiency.

We can only move this up further by, individually, adopting the right attitude that would accentuate the positives, eschewing all the bad habits with our finances.

(botabil@gmail.com)