It may seem like a minute apocalypse with seven banks going down from 2017 into the almost ending 2018. Ghana now has 12 commercial local banks and 17 foreign banks. Out of these, two local banks and a foreign bank are already in processes of a mergence. This will further reduce the number of local banks to 10 and 16 for foreign banks. The market at the present time seems to be on the badge of foreign banks, looking at the numbers. But is this a good thing? From confidential sources, five more local banks will be going down as well. Not to cause panic, but this looks frightening.
The reality of having more foreign banks may not seem too good for a country whose cedi is far outpaced by the dollar. The foreign banks repatriate not less than 40% of their assets, one of the reasons why the cedi will continue to depreciate. So then, with the majority of foreign banks in the system momentarily, the cedi is neither going to reach shoulders with the other major currencies, like the dollar for instance.
What’s also more revealing is how much asset traction, is covered by foreign banks in the country. To particularly get more accurate on this, it may be necessary to quote an expert’s analysis, as I may be no finance expert myself. “In terms of market share, foreign-owned banks play a dominant role in the banking sector. On average, foreign-owned banks account for 57 % of total banking assets, 69 percent of off-balance sheet items, 60 % of total loans, 58 % of total banking deposit, 64% of tier-1 capital and 64% of shareholders’ equity in Ghana.” This was according to Emmanuel Akrong, a finance analyst as published in the b&ft and on Ghanaweb April 11, 2018. It’s by no surprise that, a large number of foreign banks declared meeting the minimum capital requirement.
It is going to be even harder for entrepreneurs and business owners to reach capital to finance their business. To validate my assertion, an IMF paper of 2006 on foreign bank evasion in developing countries alludes to this. According to the report, “as the presence of foreign banks grew, bank capitalization improved and NPLs and operational expenses declined, but lending, particularly to the private sector, declined. The fall in private lending was more pronounced in foreign than in domestic banks. A number of empirical studies find that, in poor countries, foreign banks tend to lend mainly to large firms (domestic or multinationals) and the government rather than smaller businesses for which local knowledge is necessary.”Evidently, more local banks are necessary to the development of the private sector. The private sector, in the president’s own words “is to lead in the development of the national economy.” And so if small-scale industries will be struggling to earn capital for growth, more unemployment outlets are going to show up, adding to the current drain created by the banking sector.
In as much as the sanitization is necessary, an economic recession is imminent, with the mammoth unemployment popping it head already.
Gifty Danso
