Outgoing Managing Director of HFC Bank, Robert Le Hunte, has said the number of commercial banks in Ghana vis-à-vis its 26 million population, is unhealthy for the financial sector, suggesting that the number be cut to a maximum of 9 banks.
“There has to be consolidation,” Mr Le Hunte, who leaves Ghana soon to take up a cabinet appointment in his country – Trinidad and Tobago – said.
“Based on what I see and the size of the Ghanaian economy, I will say we should have nothing more than 9 banks maximum,” he said.
“It has to come down considering that a big country like Canada has only six banks; Nigeria with fourteen banks...”
Other industry players have similarly said 36 banks are too many for the country, especially when they have capitalisation issues, with very high risk profiles.
“The truth is: we shouldn’t have more than 10 banks,” Kenneth Thompson, Managing Director of Dalex Finance, told the B&FT in March.
“About 35 banks for an economy largely controlled by government, and where almost all banks are chasing government business, is not sustainable. The banks would not willingly merge and I think the central bank can force them by raising the minimum capital and make them merge,” he said.
“Thirty-five looks too much,” Henry Oroh, Managing Director of Zenith Bank, also said in March, although he cautioned that “consolidation and integration should be done carefully.”
The Nigerian case
More than a decade ago, Nigeria’s central bank drastically increased stated minimum capital for banks by more than 1000percent, which forced the number to shrink from 81 banks in 2004 to fourteen currently.
The Bank of Ghana undertook a similar move, but the increment was only two-fold, from GHC60 million in 2009 to GHC120 million in 2013 for new entrants, and the number of banks actually increased from 28 to 36 currently.
But the BoG is now considering a “substantial” upward adjustment to the stated capital, and some of the local players are warning that it could stifle them, or that the same level of capitalisation should not be required of all banks.
Osei Asafo-Adjei, Managing Director of The Royal Bank, told the B&FT recently that forcing all banks to attain the same level of capitalisation, substantial as it is expected to be, could lead to some of the banks having excess capital, which they could invest wrongly.
“What excess capital means is that because I am not working my capital adequately, my return on assets, and return on equity will be so low I could collapse because of excess capital and also because shareholders will not be happy with me,” he said.
The collapse of the UT and Capital banks, both locally owned, has brought the banking industry into sharp focus, with critics lambasting the central bank for being lax in carrying out its regulatory mandate.
Commenting on the development, Mr. Le Hunte said it is a testament to how tough the industry is and how the regulatory environment needs to be strengthened.
He commended the central bank, though, for managing the takeover process such that depositors’ funds have been protected.
“The fact that we are here today and depositors have not lost their funds, because this happens a lot around the world where depositors lose their funds if the right structures are not in place, is commendable... I think we need to commend the governor and his team,” he said.