By Samuel Doe Ablordeppey, ACCRA

The Group Chief Executive Officer of BEIGE, Mr Mike Nyinaku, has cautioned that any attempt to artificially control the emergence of local banks would force such indigenous banks into becoming minority players in the market and in the long term make financial intermediation a preserve of foreign banks.

In an exclusive interview with the Daily Graphic in Accra, the BEIGE CEO said the regulator should rather be encouraged to work with local banks for them to increase their financial and operational capacity systematically until they become large enough to compete at the international stage.

The interview bordered on a number of issues such as the 2017 Budget, the evolution of BEIGE, its performance for last year as well as his views on whether the number of banks in the country is larger than the economy can accommodate.

Context

Some analysts have called for the Bank of Ghana to use a policy tool to force banks to merge as happened in neighbouring Nigeria some years back so as to reduce the number of Banks operating in the country. These policy tools include a significant increase in the minimum stated capital required for licensing so as to heighten the barriers to entry as well as forcing a merger of existing small banks who cannot meet this minimum capital benchmark.

Mike’s Views

I’m very passionate about this subject and would like to address it in the best way I can. First of all I support the idea of having only a few banks in the country. After all, banking is a highly sensitive enterprise, involves a great deal of risk and thereby requires a great deal of technical proficiency. It therefore presupposes that we should not allow the practice of banking to be proliferated. Thus in principle, and all things being equal, there should not be an over-abundance of banks in a country as small as ours.

Having said this, I believe you are also aware that financial intermediation enables commerce and without it we would be stuck with the good old system of barter trade. By this elementary remark I simply want to underscore the importance of the role played by finance institutions in an economy – whether big or small.

Do you also know that the practice of banking – besides being the conduit for trade and commerce – is also a business? Simply said, do you know that the banks in the performance of their functions are also conducting their business?

And finally, I hope you are aware that this country (i.e. Ghana to be precise) is a country rather young in its development. Boss, we are often misled by advancement in technology which allows us to know what is happening elsewhere. And because we get to see what is happening elsewhere we are quick to wish that for ourselves without bothering to find out how they got there. Truth however is, countries or development do not just happen overnight. They evolve. Take a simple case like democracy in governance. Almost 3 decades since we assumed this dispensation and we still do not have anything close to what pertains in the West, but that does not mean we have not made progress. We have made significant progress and someday in the future I believe we could have an Electoral College system like what pertains in the United States, in Ghana – that is if we so choose.

Look around us and if you can, pry in the secrets of the nations that are fast developing around us. Those that are succeeding on this growth path are the ones who retain wealth in their country. For this purpose I would be quick to refer to Nigeria, SA, Egypt and lately Rwanda. Indigenes are intentionally being positioned in a way that ensures that wealth is created, controlled and retained by them. Anyone that is thinking fair competition and open markets is unfortunately seeing a small picture and obviously the real intent of protectionism is lost on them. For a country like ours that has only began teething, this generation would be causing a major disservice if we artificially truncate the growth and emergence of local enterprise in the delivery of financial intermediation. And I will explain.

Here is the profile of the 33 licensed banks in the country as at December 31, 2016. 17 are foreign and 16 are local. The table below provides further information about the backgrounds of all these institutions.

Data for Banks in Ghana as at December 31, 2016
Details Nigerian Banks Other Foreign Banks Foreign Banks Local State Banks Local Private Banks Total
Number of Banks 6 11 17 4 12 33
Total assets (GHS’ bn.) 11.94 29.79 41.73 6.32 16.68 64.73
Total liabilities (GHS’ bn.) 10.21 25.62 35.83 5.28 14.92 56.03
Stated capital (GHS’ bn.) 0.42 1.02 1.44 0.11 1.00 2.55
PBT (GHS’ bn.) 0.59 1.55 2.15 0.43 0.11 2.69
Average age of bank (Yrs.) 48 93 78 46 11 50
Number of Banks 10yrs and below 0 1 1 0 8 9
Number of Banks under 5yrs 0 0 0 0 6 6
Number of Banks under 24 Months 0 0 0 0 3 3
% Number of Banks 18% 33% 52% 12% 36% 100%
% Total assets 18% 46% 64% 10% 26% 100%
% Total liabilities 18% 46% 64% 9% 27% 100%
% Stated capital 17% 40% 57% 4% 39% 100%
% PBT 22% 58% 80% 16% 4% 100%

Estimated figures

And Sam, just so you know, it takes averagely a minimum of 15-20years for a finance institution to settle and find its feet. That’s when most of its assets and liabilities would have been realised – maybe 3 to 5 times over, retained earrings accumulated, brand finally accepted and business begins to run on auto-pilot.  Yes, that’s how Ecobank evolved. It’s the same way Fidelity is beginning to evolve. GT Bank and Zenith Bank were both founded in 1990. They all found their feet after they had crossed those crucial 10-15years and even then some still required major interventions to maintain stability.

Now to the case of Ghana, of the 16 local banks we have four 4 belonging to the state, and three of these are above 50 years. The oldest amongst them is GCB Bank. Pardon me if my facts are wrong – please focus on the principle. You would see that 10 out of these banks are all UNDER-AGE banks. And whose fault is it? It is not that of the entrepreneurs. They should rather be commended for even starting and getting to the age of 10.

If banking is a business which matures after 15/20years, then what it simply means is that any bank that is not adequately supported in the first 15years of its development stands the risk of a stunted growth. It would not necessarily die but it would be running lean for too long and may lose its shine. It is not our fault that we are in this state. I’m afraid to blame our leaders but all I can say is, not until the late 90s when my gallant seniors braved the odds to set up uniBank and co. out of nothing, there were no banks – even if they were ailing – for them to inherit and further grow. Trust me that if uniBank started off in 1990 by inheriting a bank which was say 15years by then, I have no doubt in my mind that uniBank by now would be as big as Ecobank, which for your information is 67 years.

As you can see also from the table, foreign banks account for about 80% of the profits before tax of the entire banking industry. Assuming these banks have a dividend policy of say 30% of profits before tax, it means a whopping 644 million of local currency would be appropriated in buying us dollars which must be transferred outside as dividend. Now, even if the local banks have a 50% dividend policy, that money would stay in Ghana

Have You Wondered Why the Older Banks Are More Profitable?

They are profitable because they are mature. They have all peaked in their development and are coasting on auto-pilot. It is not magic, it is a principle manifesting itself. It is all explained by the table and my theory, senior. Banks grow and become profitable with age and prudent management. Most of these big banks have become stable and profitable because my parents, your parents and our state institutions have been banking with them for decades. If the state is your customer why would you not grow? And who says that is rocket science? Can you now understand what has accounted for the growth of institutions like Stanchart and Barclays?

And more importantly, while these older banks – including the ones of Nigerian origin – were in their development stages, we were sleeping.  Yet no one amongst my senior colleague entrepreneurs can be blamed for that. Why do I Say so. These Nigerian Banks stormed here from 2005. At that time there were only a few local banks in the country. I believe prudential and UniBank. And at the time these banks were more dynamic than the existing state banks though they were rather small in size. And in the scheme of events for Ghana at that time, those entrepreneurs were high achievers because they were the first Ghanaians – that I know of who had established banks, because Prudential came around 1990 or so. My real beef here is why should it have been so and the answer is simple: how many Ghanaians could have had the guts to set up Banks in the 1980s? I hope you get what I mean. So although these banks that existed at that time were rather small, that was the height of achievement possible at the time because there was no other benchmark to compete. That is why I say the entry of “Nija” into Ghana was a wake-up call to Ghanaian entrepreneurs – that, it is possible for an individual to set up and grow a big bank. Then gradually a new wave of promoters of Ghanaian origin began to emerge whose ambition now is not just to build a bank but to build big banks. Thanks to Ed Effah and Kofi Amoabeng. In a piece I delivered sometime ago, I remarked that Ghana has lost 20years of its entrepreneurial evolution, and I believe you are beginning to connect the dots now. If you are able to analyse rather deeply these thoughts I’m sharing I bet you would conclude that any attempt – be it through policy or whatever – to reduce the number of Ghanaian banks wanting to emerge would have consequences that would not be felt now but in 2035, at which time my first daughter who will then hopefully be in her thirties would be asking “Daddy, why are the Ghanaian banks so small or few in number as compared to the foreign banks”?  And if I’m alive by then I would answer to her, “it is not the case oh Maame! The powerful people at the time did not give Ghanaian businessmen the opportunity to start banks because they said the banks were already too many in the country.” I refuse the temptation to remain a spectator or….

So you see we are lucky to be awake now but we are not there yet. It would be suicidal to start comparing ourselves with countries and institutions that are already running when we only just secured our running shoes.

Come to think of it, have we asked ourselves one of the reasons why financial inclusion has been this low in Ghana? If you do geographical analysis of the prevalence of financial institution you would notice that the situation is more endemic in rural areas. And would anyone want to find out if some of these foreign banks have cared to site branches in areas like Afram Plains, Walewale, Nkoranza, Tumu, etc.? Now to the substantive matter:

Reducing the Number of Banks

Yes, Nigeria at a point forced a reduction in the number of banks. Whilst that remains true, what many lose sight of is that more than 90 per cent of the banks in Nigeria at the time were of Nigerian origin. So in essence the effect on the banking industry in terms of market share for businesses was the same except the number of players shrunk. Hypothetically a lot of small Nigerian banks merged to become a few big Nigerian banks, simple. And even at that, the few big Nigerian banks outnumbered the banks of foreign origin.

“In the case of Ghana, 17 out of the 33 class one banks are foreign-owned, leaving about half owned by locals. Out of this 16, about eight are barely three years old and are, therefore, infant banks. Each of the foreign banks also rides on the balance sheets of parent institutions,” he explained. All these foreign banks are subsidiaries of huge banks outside Ghana who have no intention – at least for now – of merging. And I’m not sure they would merge their operations in Ghana because of us. Not good reason enough.

So then, if we propose to have say 25 banks operating in Ghana, then what we mean to say is we prefer to have 17 foreign banks and 8 local banks, out of which only 4 are privately owned. And if you don’t realise how scary enough this is I suggest you refer back to the table above to see ratio of PBT between foreign and local banks.

In my view, it would not make much developmental sense to have foreign banks outnumber local banks at a time when our eyes have been so exposed. Much as a merger is essential, it does not look to me that there are enough local banks in the system to make the merger advantageous to Ghana and the future of our children. It is as though we intentionally invite two foreign companies into Ghana to come and compete with Cocobod in the interest of competition. Where then would be the need for nationality? For a country that is already late in the development of our finance as well as other sectors, we should cry our own cry and not wish to be like others overnight.

Increased Capitalisation

One school argues that minimum capital should be raised to 1bn. Sounds cool but that would be an easy raise for all the foreign banks because they are more grown and have parents with bigger balance sheets. How about our local banks? Where should they raise that from? And what are the chances of them raising all that should they even list on the exchange? And even if they do, would it make them serve the SMEs who need them most better? Should they decide to raise from overseas, there is the possibility that their ownership may be so diluted that they would cease to become Ghanaian banks.

Again setting the bar for minimum capitalisation unreasonably high may force immediate mergers by existing small players and pose as a major disincentive for new entrants. This is because merger decisions can easily be brokered when businesses are growing rather than when they are being conceived.

“But in the case of the foreign banks, this would not pose any hindrance because, thanks to their parent companies, they can provide the capital overnight.”

Again the risk of marginalising local participation in financial intermediation still stares us in the face.

Where We Are Headed

“The question is where do we want to go? Do we want to build a nation that has a majority of its people playing a significant part in the nation’s wealth creation?

“If that really is the direction of our country, then if consolidation must happen in the banking industry, there should be more Ghanaian banks than foreign banks,” he stressed.

Mr Nyinaku believes the best option is for the central bank to allow more local banks into the industry as quickly as possible and nudge them so that should it become necessary for banks to consolidate at any point in time, there would be equal number of banks owned by indigenous business people and foreigners.

Like every other business undertaking, the building of a Bank goes through several stages: Inception, Survival, Growth and Maturity; and at each of these stages, the institution portrays different characteristics. However, if you understand the stage of growth that the Institution is in, you can reasonably predict the pattern of behaviour the institution would demonstrate and are therefore not likely to be surprised when these patterns show up.

Further to this, Banks and Financial Institutions unlike the other private ventures are public institutions even before they become listed. Financial Institutions thus court a lot of attention and justifiably so from the public. It is therefore not surprising that public reaction is very sensitive to issues affecting financial institutions.

Having said this, the soundness of the operational strategy of the Institutions as well as the technical capacity and commitment of both management and all leadership in executing the strategy to the core; and this can only be assessed by the Central Bank.

Like I said earlier, it would take an average of 15 years for a freshly built and competently run Bank to mature, in our environment. And if the data in the above means anything at all, then it is only a matter of time and our local banks will soon make us proud.

Picture what you want Ghana’s finance landscape to be in the next quarter of a century, license those who qualify now, don’t gag them by forcing big transactions on them, allow them to handle transactions that they can afford, regulate them diligently so they don’t jeopardise depositors funds or overstep their boundaries, guide them and watch them evolve. The focused ones would survive in the medium term.

As the debate goes on I’m sure that the folks at BoG themselves know clearly what they are about and are looking at the bigger picture. They definitely have a plan and I believe that whatever is crafted would be in the long term interest of this country.

BEIGE

BEIGE, holder of a provisional banking licence, has since met requirements to guarantee a successful transition. He said while there was stiff competition in the corporate banking space, BEIGE would make a foray into retail banking with focus on the informal sector.

“That is a space where we see a lot of opportunity and considering our background and capabilities, we see ourselves doing well there, first.” he stated.

This year the financial services provider wants to firm up its evolution, making sure that the brand identity and new focus become well known to the public as a one-stop shop for all financial products, anywhere a BEIGE office can be found.

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The Beige Group
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