Is banking sector sinking?

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    Ecobank closes branches, sacks workers

    …A number of banks to miss current capitalisation of GHC120m

    By Frederick ASIAMAH

    This is an era of strategic decisions by commercial banks and financial institutions. It is also an era of bank takeovers, bank branch mergers and layoff of workers. Add to these the inability of several microfinance companies to promptly pay withdrawal requests of depositors.

    These are happening within the context of an expanded economy that requires commercial banks to raise their capitalisation by, at least, a whopping 200%. There are proposals that the minimum capitalisation be raised from GHC120 million to GHC400 million by close of 2018.

    The proposals are beginning to look frightening for some banking sector players, giving currency to arguments that the financial sector is not as resolute as has been portrayed.

    Forget not that some financial institutions are also closing (merging) some of their branches.

    Meanwhile, many microfinance institutions are said to be struggling in repaying deposits of customers, leading to some of them being blacklisted by the Bank of Ghana.

     

    Ecobank case

    The latest development in the banking sector that has raised some concern is the decision by Ecobank Ghana to terminate the contracts of 181 “outsourced staff” and close 10 of its branches.

    Some analysts believe this move is geared at freeing substantial funds for the bank to mobilise much-needed funds to finance the recapitalisation exercise that the Bank of Ghana is embarking on between now and close of next year.

    The realignment or merger of branches that are close to each other is expected to greatly relief the bank in terms of its cost of production. Indeed, Rev. Patricia Sappor, Head of Corporate Communications at Ecobank, Ghana has admitted that “It is prudent for the bank to merge” branches.

    Ecobank’s alibi is that “most” clients are moving onto digital platforms – the Masterpass QR which makes prompt payment possible, POS, ATMs, the Ecobank App and internet banking.

     

    General stress

    While the move by Ecobank makes business sense, analysts believe that such measures are being taken to sustain a financial sector that is gasping for breath – cash injection.

    The dust has barely settled on the “GCB takes over UT and Capital banks” saga. Besides, it is being rumoured that seven more banks could be liquidated in the course of time.

    The clearest indications of these are being given in the BoG’s talks about banks raising their capitalisation.

    The capitalisation figures being rumoured are in the region of the cedi equivalent of about $100 million.

    This is considered by some leaders of banks as too huge and must not be implemented at a go. Stagger it so that it does not affect most of the local banks because of most of them is stressed and can easily go down.

    According to a JoyBusiness report last week, the troubled banks that had not met the current capital level of GHC120 million have up to September 20 to improve their position.

    A pointer to the stress among local banks is a 2016 report on “Risk Management and Performance of Listed Banks in Ghana” which was authored by Eric Dei Ofosu-Hene and Peter Amoh, which was published in the European Journal of Business Science and Technology Volume 2, Issue 2).

    Ofosu-Hene and Amoh wrote that “The overall risk index for individual banks listed on Ghana Stock Exchange (GSE) improved from an average of 25.93 in 2007 to a peak of about 33.3 in 2010 and steadily fell to about 26.54 in 2013 but with a sharp fall in 2014 hitting 8.58.”

    The researchers explained that “This could be attributable to the harsh economic conditions in 2014 resulting from the major power outages facing many industries in the country and hence increasing banks risks exposures.”

    They also stated that “…Non-indigenous Ghanaian banks were a lot safer than the indigenous Ghanaian banks. This could be as a result of the more strenuous prudential regulatory risk management frameworks which overseas banks are subjected to.”

    In the BoG’s Banking Sector Report Vol. 2.3 published in July and covering developments in the Ghanaian banking sector as at the end of June 2017, the central bank observed that “The performance of the banking sector for the first half of 2017 was mixed with some key performance indicators pointing to better performance in June 2016 compared with June 2017.

    “Most banking sector indicators declined in June 2017, but remained within the statutory or regulatory thresholds.”

    On the positive side, “The industry also recorded strong total asset growth in June 2017 compared with the same period last year, driven by strong growth in investments and domestic assets. Gross advances also picked up in June 2017 compared with the June 2016 level.

    “However, results of the credit conditions survey conducted by the Bank of Ghana in June 2017 also indicated net tightening in the credit stance of banks on loans to enterprises and households in the second quarter of 2017.

    “In addition, the survey pointed to a decline in the industry’s inflation and lending rates expectations a year ahead due to sustained decline in inflation and general improved expectations regarding the performance of the economy.

    “The key risk to the banking industry is the high stock of impaired assets to total loans as measured by the non-performing loans (NPLs) ratio. The industry’s NPL ratio increased between June 2016 and June 2017 driven by the energy related and other large non-oil related exposures.”

    So, the question is: Is the banking sector sinking?

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