Businesses struggling for credit facility

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    Professor Mathew Tsamenyi, Executive Director of the China Europe International Business School (CEIBS)

    …Despite more banks

    By Frederick ASIAMAH

    Many businesses in Ghana are still struggling to access credit facilities despite the availability of numerous financial institutions in the country.

    Professor Mathew Tsamenyi, Executive Director of the China Europe International Business School (CEIBS), has told Business Day that the situation does not augur well for the development of the economy and therefore called for consolidation in the banking sector.

    “So… I think there is a need for consolidation. There are too many banks,” he opined.

    The Professor of Management Practice in Accounting continues that “We don’t need as many banks. I think what we need is few banks with very strong balance sheets.”

    When that happens “Then, of course, those banks can penetrate. They can have different products targeted at different consumer groups. I think that is what it’s supposed to be rather than everybody trying to open a bank.”

    He then predicted that in the wake of the BoG increasing the capital requirement, Ghana will “see a lot of consolidation because that’s exactly what happened in Nigeria and now, if look at it, Nigeria has one of the strongest banking sectors on the continent.

    “It all happened because they were forced to consolidate. So, I think that is probably the way to go.”

    He said it is still possible to expand banking coverage with fewer banks than the 35 banks on the books of the BoG.

    “I mean, it doesn’t stop the banks from reaching communities, clients but they need to start first from a very strong, probably I will say, balance sheet rather than having all these fragmented banks in the system,” he said. 

    SMEs choking

    Prof. Tsamenyi, who is billed to speak this week at the Business Women’s Summit 2017 to be organised by the Grace Amey-Obeng Foundation International (GAOFI) and CEIBS, identified that the biggest effect of difficult access to credit is felt by small and medium enterprises, especially start-ups.

    “The banking sector is not interested in lending to entrepreneurs because: number one, they are too risky, they don’t have collateral. They are probably interested in putting their money into treasury bills or other things…so if you have a micro business, for instance those who sell on the streets, in the kiosks, walk to the bank that they want a loan, I think they will probably get so stressed because the sort of information that the banks will be asking for – collateral and others – they don’t have it.” 

    Robustness

    Recent developments in the banking sector have given rise to concerns of instability – two banks were forcibly liquidated leading to their workers, numbering over 1000, being laid off; Ecobank terminated contracts of about 180 out-sourced workers; and the Bank of Ghana (BoG) has demanded that universal banks raise their capital requirement from GHC120 million to GHC400 million by close of 2018 even though some banks have struggled to meet the existing capitalisation.

    On August 14, 2017, the state-backed GCB Bank took over two private banks with staff strength in the region of 1000 – UT and Capital banks.

    The BoG, in a statement, described the take over as: “a Purchase and Assumption transaction with GCB Bank Ltd that transfers all deposits and selected assets of UT Bank Ltd and Capital Bank Ltd to GCB Bank Ltd.”

    Martin Ofori, chief executive officer (CEO) of Crystal Capital & Investments Limited, believes that the anxiety that the transactions generated amid suggestions of stress in the financial sector should have been tempered.

    Ghana’s banking sector is robust enough to shake off current difficulties and purge itself of non-performers, he argued in an interview with Business Day.

    “I think the recent liquidation of UT Bank and Capital Bank is one of the most efficient and smooth operations of the central bank that I have seen and I will commend the central bank for this operation because the previous times, where liquidations had had to take place, banks, shareholders and depositors had to go through a lot of ordeal before they got a clean-up of the system.

    “I will say that the fact that the central bank has called the shots, cracked the whip, put sense in place, liquidated two banks, given the signal that no you have to sit well, increased the threshold of capitalisation is a sign that they want to strengthen the banking system. I think that capital is essential; it provides the cushion for risk-taking management…” the investment banker said.

    “Now, if a bank is liquidated or a bank is forced to merge with another by the regulator for reasons that, that bank failed to meet certain indicators, I do not think that is a signal of weakness in the banking sector. It is rather a signal that the banking system is strong enough to purge itself – you understand – and to rid itself of weaker institutions so that it will remain strong.”

    He further argued: “You know the theory of the bad apple? The regulators want to ensure that one bad apple does not spoil the entire system. So, they have come out with certain issues – some regulatory issues – and the indicators that are supposed to be met by all the banks within the system that are being regulated by the central bank.

    “So, at some point in time, the central bank may court you over a period to see whether you can come out of it. If their projections indicate that you cannot come out within a foreseeable period, then they crack the whip. This is strength rather than a weakness,” he posited.

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