Banking expert Dr. Richmond Atuahene has highlighted concerns about the state of Ghana’s banking sector, suggesting it has faced significant challenges over the past decade.
His remarks came in response to Societe Generale’s decision to withdraw from Ghana after operating there for twenty years.
Dr. Atuahene pointed to data showing consistently high levels of non-performing loans in Ghana’s banking sector, averaging around 16.5% over the last ten years.
According to him, this figure aligns with international standards used by organizations like the International Monetary Fund to identify a full-blown crisis within a banking sector.
“Since 2014, our non-performing asset ratio has hovered between 11% and 24.9% as of December 2023. If you use this to test the resilience of the sector, it is completely not resilient.
“There is literature written by IMF staff in 1998. It states that any banking sector that has more than 10% non-performing assets can be described as a fully-fledged banking distress or crisis.”
Dr. Richmond Atuahene
Data from Ghana’s banking sector shows a concerning trend in non-performing loans (NPLs) over the years: 11% in 2014, 14.7% in 2015, 17.6% in 2016, 22.7% in 2017, 18.2% in 2018, 14.7% in 2019, 15.7% in 2020, 15% in 2021, 15% in 2022, and a sharp increase to 24.9% in 2023.
He said the Domestic Debt Exchange Program and the government’s delays in paying arrears owed to contractors have worsened the situation. This has put indigenous banks at a disadvantage against foreign competitors, making it challenging for them to establish a stable footing in the sector.
Local Banks’ Expansion Hurdles and GAT Challenges
Dr. Richmond Atuahene analyzed the potential for local banks to capitalize on the departure of a foreign bank to expand their operations but dismissed the idea as unlikely.
According to him, both privately owned and state-run indigenous banks lack the necessary stability and resources to compete effectively for the opportunities left by the departing foreign bank.
Additionally, Dr. Atuahene disclosed that the Ghana Amalgamated Trust (GAT), established to support five surviving banks in meeting their minimum capital requirements following the banking sector clean-up, has instead burdened these banks with high costs associated with servicing the transfers.
“In 2019, when the GAT came in, everybody thought it was going to lend money to the banks at a reasonable price. You will be shocked to learn that the amount of money given to them and the cost of that money alone is killing the banks. If you are giving someone subordinated capital, you are not supposed to put a bond rate on it.”
Dr. Richmond Atuahene
GAT Plc was set up to help support five local banks namely Agricultural Development Bank (ADB), OmniBSIC, Prudential Bank, Universal Merchant Bank, and National Investment Bank (NIB), as they were unable to raise equity to meet the Bank of Ghana’s minimum capital requirement (MCR) of GHS400 million by 31 December 2018.
Moreover, Dr. Richmond Atuahene expressed concern over the trend of multinational brands closing their operations in Ghana over the past three years, suggesting that these closures were not unexpected.
He noted that many conglomerates might hesitate to do business in Ghana due to the country’s challenging macroeconomic conditions, which are less favorable compared to its neighboring countries in the Sub-Saharan region.
“When you are a multinational going to invest, you look at macroeconomic stability, which includes a fairly stable currency, lower inflation, fiscal deficit control, a manageable public sector debt, a positive balance of trade, etc. All these indicators do not look very good.
“They have shareholders to pay. If I invested US$100 million in Ghana in the year 2019 when the cedi was 5.17 to a dollar, today the cedi is 14 cedis. If I made the same investment in La Cote D’Ivoire, where the currency has been fairly stable, I would prefer to go there to invest.”
Dr. Richmond Atuahene
Dr. Richmond Atuahene’s analysis underscores grave concerns about Ghana’s banking sector, signaling prolonged challenges and a lack of resilience, exacerbated by high non-performing loans and obstacles hindering local banks’ growth potential.
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