“We are seeing the banks offering more credit to smaller businesses, rather than repelling it through high charges. Previously they just focused on the corporate sector” - Paul Acquah, Governor of BoG

Ghana’s financial sector is strong and looking for opportunities, according to the Governor of Bank of Ghana (BoG), the country’s central bank. “We now have a banking industry that is reasonably competitive and well capitalised, sound and liquid, having withstood the pressures of rapid disinflation over the past years,” says Paul Acquah.

Recent developments in the sector show strong asset growth, increased competition and improved financial soundness. A recent survey of the industry by PriceWaterhouseCoopers concluded: “The banking sector in Ghana remains one of the sectors with the brightest opportunities, despite increasing competition.”

The banks are moving away from lending to the government and towards supporting business. The reduction in domestic borrowing by government and the abolition of a secondary reserve requirement has freed up funds for lending to the private sector.

“We are putting an emphasis on developing the domestic capital market, so that the opportunities become wider and more diversified,” Dr Acquah explains. “The banks are at a stage where they have to shift just from investment in treasury bills towards true financial intermediation, and they can apply their liquid resources towards this.”

At the end of the second quarter of 2007, annual growth of real credit to the private sector was at 33.3 per cent. This includes increasing lending to small and medium sized businesses (SMEs). BoG has been proactive in supporting rural banking, and banks are responding to encouragement to reach out to small operators.

“We are seeing the banks offering more credit to smaller businesses, rather than repelling it through high charges,” says Dr Acquah. “Previously they just focused on the corporate sector.”

Consumer credit is also on the increase, and the banks are introducing new products and services as the battle for deposits intensifies. Ghana is still largely a cash-based society, without a widely practised savings culture. However, use of new customer facilities, such as debit cards and automatic telling machines (ATMs), is rising.

Paul Acquah Governor of the Bank of Ghana

Competition between the banks has been stepped up with the entry into the market over the last five years of five foreign banks, four of them Nigerian, bringing with them a more aggressive approach.

Currently, there are 23 licensed commercial banks in Ghana, with a network of around 600 branches. However, the number is expected to decrease following a recent announcement by BoG that the minimum paid up capital requirement for banks is to increase next year from 70 billion cedis to between 500-600 billion cedis ($50-60 million).

A series of mergers and acquisitions is likely to follow as smaller institutions that are unable to meet the new requirements are swallowed up. However, the adjustment is expected to strengthen the risk-based management of the banks and encourage them to enhance their operational efficiency and push ahead with new technology projects.

By the end of the year BoG and the Ghana Association of Bankers hope to introduce an automated interbank payment and settlement system that will allow banks to transact business between themselves electronically, eliminating time-consuming, costly and labour intensive manual transactions.

All banks will use the Ghana Interbank Payment and Settlement System (GIPSS) either directly or by accessing it through member banks. In addition to the common electronic platform, the GIPSS will include a biometric smartcard, codeline cheque transaction, real time gross settlement system and automatic clearing house.

The GIPSS will significantly reduce the usage of cash for business transactions and move the economy towards electronic payments. It will also extend services to the unbanked and underbanked segments of the population.

“We are preparing the economy for electronic payment systems so that we can increase the number of people that are involved with a banking system and can integrate rural communities,” says Dr Acquah.