In spite of a softer macroeconomic environment, Ghana?s banking sector is in good health, thanks to an increase in assets and strong capital ratios, which in turn is encouraging an expansion by banks into new segments of the financial services market.

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Despite economic growth set to decelerate to 4.5% this year, according to IMF data, overall assets in Ghana’s banking sector surged 39.7% year-on-year to GHS44.2bn ($13.9bn) in July, the Bank of Ghana’s (BoG) monetary policy committee announced in its September statement. ?The banking industry continued to experience steady growth in both nominal and real terms, evidenced by trends in total assets as well as branch expansion across the industry,? it noted.

Surge in assets, credit

Credit to the private sector increased sharply, up 46.2% in July, compared to 28.1% in the same period a year ago. Real credit growth, which is adjusted for inflation, increased 26.8%, almost double the rise experienced a year ago. Credit expansion was largely funded through a higher number of deposits. Banks such as Soci?t? G?n?rale Ghana (SGG), for example, have used marketing campaigns and promotions to encourage a greater savings culture amongst Ghanaians.

This growth in assets and credit was achieved despite Ghana’s economic slowdown, rising inflation ? which reached a four-year record of 15.9% in August ? and investor concerns about the fiscal and current account deficit, which stood at 10.8% and 12.3% of GDP respectively last year, meaning that the country has been spending more than it collects in revenue. The twin deficits have impacted the near-term outlook for Ghana?s headline performance, although a successful $1.5bn Eurobond sale last month followed by the start of discussions with the IMF over a technical assistance package has strengthened investor confidence.

The average capital adequacy ratio, which measures a bank’s capital against its risk, stands at 16.2%, down from 18.6% in the same period last year but still well above the 10% regulatory minimum and comfortably high by international standards.

Meanwhile, non-performing loans (NPLs) adjusted for provisions increased to 5.4% in July from 5.3% in the same period a year ago, a modest rise that can easily be expected in an emerging market banking system where credit is expanding after a severe economic downturn.

The IMF has noted that state banks should be particularly wary of debt arrears from state-owned companies, an issue that has cropped up in a number of other emerging markets in Africa, particularly where selected services and utilities ? such as electricity or fuel refining ? are subject to subsidies or lack cost-recovery tariffs.

Funding the expansion

In line with most West African markets, lending rates in Ghana remain very high, averaging 27.8% in July compared with 13% on three-month deposits. Although overall transparency in the lending environment has improved with the rollout of new credit bureaux over the past few years, a lack of information on smaller borrowers ? particularly for households and SMEs ? means that credit penetration remains relatively restricted. Meanwhile the BoG held its key lending rate at 19% in September.

Given the high rates at home, Fidelity Bank, like some other Ghanaian lenders, has turned to foreign backers. In April, South Africa?s Kagiso Tiso Holdings and investment firms Edmond de Rothschild Europportunities Management II and Amethis Finance invested around $67.3m in exchange for equity stakes and convertible assets. The deal provides Fidelity with financing while investors get a stake in a sizeable and ambitious player in a fast-growing market.

Among other similar deals, Ghana?s Guaranty Trust Bank in September signed a $20m loan facility with Dutch development bank FMO, a move that will allow Guaranty to increase its lending and also expand dollar-denominated loans following the BoG?s decision in August to ease foreign exchange controls.

Expanding the reach

The healthy fundamentals of the banking sector have prompted a number of institutions to try to access the underpenetrated retail and SME segments, in a bid to expand the customer base. Given the higher levels of risk and smaller transaction volumes in those segments, however, lenders are opting to boost links with established non-banking financial institutions (NBFIs).

Fidelity Bank, currently the country’s seventh-largest bank in terms of assets, announced a deal in September which will see it acquire ProCredit Savings and Loans Company.

In early 2012 Ecobank, the country?s largest bank in terms of assets, acquired The Trust Bank Ghana (TTB) in a share-swap transaction. Trust Bank, which had a strong profile in the small and medium-sized enterprises and local corporate business segments, was majority-owned by SSNIT before the merger with Ecobank. Access Bank, meanwhile, finalised the acquisition of Intercontinental Bank in 2012 making it one of the top ten banks in Ghana, while Bank of Africa, which has a presence in 15 African countries, acquired Amalgamated Bank in 2011.

A four-tier financial sector in Ghana ? comprised of banks, savings and loans companies, rural community banks and microfinance institutions ? means that by acquiring companies in the non-banking tiers, banks can broaden and deepen their portfolios, and bring to bear their branding, technology and expertise in under-banked sectors. And with 140 rural and community banks (RCBs) and 57 non-bank financial institutions (NBFIs) the market is ripe for consolidation.

Due to a combination of single borrower limits and low capitalisation in absolute terms, local banks are motivated to consolidate in order to support larger projects, especially those related to oil, gas, technology and the financing of cocoa purchases by the Cocoa Board. Fidelity’s finance director, Edward Opare-Donkor, is hoping that recent capital injections will strengthen the bank and make it a more attractive partner for larger rivals when they pitch for major financial deals. A planned listing on the Ghana Stock Exchange by 2017 should provide a further boost to capital.

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