Ghana’s banking sector in the last 10 years has proven to be one of the fastest evolving communities in the business world in the country.
Following redirection through regulatory interventions, which resulted in the introduction of the new Banking Act to the elimination of secondary reserves, and adjustment of minimum requirement upwards, the banking landscape has become a platform for continued evolution.
A key feature with respect to the developments in the sector has been the deliberate focus on creating an environment for growing banks with the necessary scale to participate in big ticket transactions and become global game changers.
This explains the thinking behind the revision of the minimum capital of banks to GHC100m; a situation, which many watchers intimated would trigger mergers, acquisitions and takeovers and result in the creation of bigger players in the sector – something that Ghana and, indeed, Africa as a whole, desperately need for development.
Growing stiff competition from diverse sources has also necessitated the ‘niche market creation’ by banks in an attempt to survive and reposition.
Ghanaian banks generally are seen as small ticket players in big transactions in a syndicated manner, but not perceived as catalysts to accelerated economic transformation, thus attracting criticisms over their inability to take actions that contribute to the speedy realization of this transformation.
The truth is that most local banks have small balance sheets and those small balance sheets are sometimes not able to finance big ticket transactions. Currently, Ghana, for instance, has a huge infrastructural gap because majority of the banks have small balance sheets and are unable to meaningfully participate in huge infrastructural projects.
Bottom line for the revision of the minimum capital is that it was intended to ensure local banks up their scale in business. And it surely did open up opportunities for takeovers, consolidation, mergers and acquisitions.
Consolidation means creating big balance sheets; for banks which can participate meaningfully in big ticket transactions and deliver the higher dividends to shareholders. It means that banks, when they are big enough, can stand the shocks that the industry confronts and also look to offering more services to various clientele.
It is in the light of this that some changes have taken place in the banking sector. One example is the takeover of the HFC Bank by Republic Bank of Trinidad and Tobago.
Stakeholders with a third eye could easily draw the conclusion that whatever transaction that had taken place was for the good of all, especially for the following reasons.
For the government, the opportunity and indeed value in takeovers is that, key infrastructural projects would receive the needed financial injection. Obviously, the huge infrastructural gaps that would be addressed would increase the competitiveness of the economic environment to attract big ticket investments.
The current ongoing energy dilemma clearly attests to the need for big scale banks to come together as a first step and partner government to address critical challenges in the economy.
The Big banks also come along with cutting edge financial engineering skills and competences due to experiences in various segments of economic activity. Added value is the potential of multinational organisations and investors redirecting investment attention to Ghana and, therefore, making long term investment commitments here that result in partnerships that create more value for all.
The value to customers could be seen in many ways: capital intensive sectors such as real estate, oil and gas, agriculture and construction can access huge financial support to expand the way they want. Expansion on the back of improved access to increased financial support means recapitalization, more jobs, increased output, opening up of the economy and the ripple effect continues.
Ghana currently faces a housing deficit of one million housing units. The Mortgage market is only accessible to the upper middle to upper class due to high risk factors because of the small-scale nature of many Ghanaian banks. Currently, Ghana has one of the highest rates for the cost of capital, which is a result of multiple risk factors – key among them being the level of scale of banks.
Customers are, therefore, unable to enjoy innovation in various products and services and are saddled with very limited portfolio of product and services.
For the banking community, the value of mergers and acquisitions is the leverage for companies to up the scale of their operations, broaden their product portfolio, and enter into new markets. This would mean there must be a deliberate focus to ensure skills development through training human capital, improved technology to facilitate efficiency and effectiveness and more robust transparent governance systems to deliver increased value to shareholders.
The Good news is that, big scale banks stand to benefit from tax gains, increased revenue and reduce the cost of capital for consumers to do business.
The staff would benefit from the organization’s continual investment in empowering them to deliver through skills development, career growth and give them a sense of belonging and fulfillment to be part of building a legacy that preserves a brand for good.
For example, in South Africa because of the scale of banks, they are able to underwrite big ticket transactions in property, infrastructure, services, and extractives among other things. This is happening because of scale, which is the plain reality.
No wonder, Nigeria saw the writing early enough bringing the effect of the massive restructuring of the banking sector in that economy for all to see.
Clearly, because of the then relatively lower minimum requirements, some affected banks relocated to Ghana.
We, therefore, need the stature and muscle of the likes of Republic Bank Limited with its over 176 years of experience in banking to rub on us. The future indeed looks bright with all the big prospects and any serious economy desirous of staying competitive and ahead of the pack, will surely look to the game changers in big banks.
After all, the future of global banking is motivated by BIG IS BEAUTIFUL and the Insurance industry in Ghana is also following suit so that it does not lose out in playing a key role in insurance cover in downstream business in the ever expanding oil and gas industry and other growing sectors of the local economy.
It is time for banks in Ghana to go BIG so the Republic Bank Limited should come with its financial muscle, experience, leverage and expertise and partner stakeholders to create the needed value achieved in the Caribbeans, as one of Ghana’s children coming back home.