Friday, June 2, 2023

When Ghana’s Central Bank Cracked the Whip Amidst An Unstable Sector With Too Many Banks

The Central Bank of Ghana continues in its effort to clean up the banking sector. Notably, among some obvious restrictions it has been the mandatory takeover of two privately owned banks: Capital Bank and UT Bank by the state-owned Ghana Commercial Bank back in 2017 under the authority of the Bank of Ghana. Other activities have been done by the Central Bank of Ghana so far, the sector still needs some stability. Currently, Ghana’s banking sector is unstable, although its prospects look good in the not too distant future should major regulations and activities be carried out by the central bank.

The sector is still reeling from last year’s sanctions on 2 banks, yet another bank experienced direct sanctions from the central bank, thus, Unibank, (it was ranked 6th best in Ghana in the Ghana Club 100 Awards in 2017 was declared the performing company). Currently, the country’s Central Bank has announced that on March 20, 2017, it has mandated and authorized the management of Unibank (privately owned bank), which will be dissolved by KPMG. Interesting!

Now, the Bank of Ghana itself needs some house cleaning. It is highly unacceptable to inspect an area in which a player is believed to be playing just because he is withholding some important data. The Central Bank, however, gives its defense for action against Unibank that the bank has maintained a capital adequacy level ratio close to zero, which could practically mean that Unibank is insolvent. Reports from the Central Bank said that it instructed Unibank to stop extending any additional new loans to customers, however, the bank failed to comply with the instruction and continued to extend new loans. Also, Unibank was directed to refrain from incurring any additional capital expenditure, which they (Unibank) did not comply with, in violation of section 105 of Act 930.

Unibank is believed to have been a creative bank, if one were to observe its banking activities over the years from afar, as per the KPMG guide to central banks and banks should be one that does not disturb their positive employee-customer culture. Which was easily seen to “vibrate” between its customers and the bank. Unibank has some very loyal customers, consisting of a large number of merchants. Therefore, the Bank of Ghana should guide Unibank keeping the existing brand and finding clear ways to revive the bank.

Having said that, there are a lot of Universal Banks for Ghana. The number has to be capped as having around 40 banks for a population of 26 million is clearly too many. What needs to be done is to build the capacity of existing banks to “branch out” customers. This can be done in two ways: expanding physical infrastructure and expanding digital (online/mobile banking) infrastructure to reach closer to the customers. Existing banks should be keen to improve their service experience, get closer to people, expand digital channels of banking and improve banking security.

While making it clear, I am in no way against the registration of banks, in fact, my position is directly opposite as I am not oblivious to the importance of financial services to individuals and the economy as a whole. My position would be the opposite. My views are clearly that instead of registering new banks, some of which operate few branches without better services or infrastructure, it would be better to give resources to existing banks to improve their capabilities.

Finally, some of these financial institutions will have to consider mergers if there is any chance of remaining profitable in business and serving customers at the standards the sector is set to become more competitive in the coming years, and especially now. When the minimum capital requirement has been raised by the Central Bank for banks to 400 million Ghana Cedis, which will be effective from December 2018.

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