The recent Bank of Ghana’s (BOG) Policy to merge banks have been influenced mainly by the increase in capitalization. This is due to the increment of Bank of Ghana’s minimum capital requirement of banks from GH¢120 million to GH¢400 million in September 2017, aimed at spurring consolidation, market innovation and be able to fund capital-driven industries. Ghana’s total banking assets is GH¢84.49 in 2017. Bank merger and acquisition isn’t a new paint of colour in the banking sector.Many banks have merged or have been taken over by another.
The first major increment in the minimum capital requirement of banks was in the year 2008, where the BOG set the minimum capital of banks in Ghana at GH¢60 million and further increased to GH¢120 million in 2013. The reason by the BOG was to protect depositor’s funds. After the two increment, a lot of banks who could not meet the deadline resorted to mergers and acquisitions in order to comply with the Bank of Ghana’s policy regulations.
The Banks, Intercontinental Bank, Trust Bank of Ghana and BPI were taken over by Access Bank, Ecobank and UT bank respectively. Radical reforms to fix this market because of the low capital of banks to operate efficiently may not guarantee market driven economy and ensure low-income households have access to affordable and innovative financial services designed for them, rather than assigned to them as an afterthought.Mergers, acquisitions or takeovers have their own footprints irrespective of the industry.
The American and Mexican Case
According to Daron and Robinson (Why Nations Fails) that “in 1818, there were 338 banks with total assets of $160 million operating in the USA. By 1914 there were 27,864 banks with assets of $27.3 Billion in the same USA. This triggered intense market competition among banks and financial firms. This obviously made capital more available to start a business with adequately low rates on interest for inventors.
It means, capital was available at fairly low interest rate.There was a financial inter-mediation and banking that was a crucial facilitator of the rapid growth and industrialization that the economy experienced. The same was not true in Mexico.
In 1910, the year in which the Mexican revolution started, there was only 42 banks in Mexico and two of those banks controlled 60% of total banking assets. There was practically no competitions among Mexican Banks. The lack of competition meant that banks were able to charge their customers very high interest rate, typically confined lending to the privilege who would then use their access to increase grip over the various sectors of the economy.
Lack of Market competition in Ghana
The narrative of Mexico is not different from the modern society of Ghana. Ghana in 2017, had 39 banks without competition among them. The lack of competition had made banks to charge clients with high interest rates and direct lending to the already wealthy and government workers who have safe jobs. The number of banks doesn't inflate inflation but a number of factors that includes, demand-pull inflation, Cost-pull inflation, devaluation, rising wages and other expected factors. I could conclude that, banks in Ghana needs not to be tailored together but must be taught to compete in the market to increase total assets for young entrepreneurs to secure loans to start a venture.
The high interest rate on loans and premiums scares young professionals, graduates and entrepreneurs to put their innovative ideas into job creation and profit making. The likelihood one may not be able to pay back loan if not a public servant is high due to modes of registering business, renting an office, internet data usage if the business needs internet, scarce resources (as resources are controlled by the state, and expatriate preference over the Ghanaian indigenes) and that most banks targets public workers against the private sector.
Ghana may need economic institutions that could motivate and subject banks into greater competition for a fair interest rate. More competition is necessary, but it has to be a radically different type of competition. Simply imposing a policy rate cap, increase in capital requirement, or merger policy from the ashes of the Government bailouts will never achieve this goal either.
The increment of the minimum capital requirement from GH¢60 million to a twice of it still brought in more banks to operate. Moving it to GH¢400 million would not stop other banks cropping up to compete in the market but the kind of competition is the issue. Banks in Ghana only compete to ask individuals to open a savings account with an amount of GH¢20 ($4.60) and advertising on promo-packs for customers to deposit to keep the banks running.
No other form of innovative lending competition or developmental concessionsthat attract customers are initiated. Ghana's lending industry has been "collateralized" and interest rates deter one from securing loans.
The final report is high non-performance of loans. We may not be able to industrialize with high interest rates on credits and with the indicators leading to high inflation. The BOG must tread cautiously with the One-district-one-factory anti-poverty program and its sustainability of the government. Increasing lending can increase economic growth and prosperity. This can be done via healthy and innovative market competition among banks.
Peter Bismark Kwofie is the president of the Institute for Liberty and Policy Innovation (ILAPI), a free market think tank in Ghana. Peter won the 2017 Africa Think Tank Shark Tank in South Africa. He is a policy analyst on most media platforms in Ghana, using individual liberty and market principles to buttress his points for public discourse.
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