Most commercial banks in the country do not see merging or being acquired as a prudent strategy in meeting the new capital requirement by the Bank of Ghana, a new PwC survey has stated.
The 2018 Ghana Banking Survey gauged the views of Chief Executives, Chief Risk Officers, operation and strategy heads over the past one year, through interviews and questionnaires and to elicit views on how the minimum capital requirement is likely to impact on the investments of banks.
Other issues
The survey showed that a majority of the bank officials engaged want to depend on their income surplus in meeting the new capital requirement. It showed that most of the banks prefer relying on reserves for fresh capital injection.
They were also of the view that fresh capital from new investors was a more realistic option compared to right issues. They also believe that opportunities existed for them in terms of growing their financial institutions.
The commercial banks were of the view that the single obligor limit for banks could also be increased very soon, which would go a long way to improve the number of businesses the banks can handle and improve funding to private businesses.
Post-capitalization opportunities and threats
With regards to the opportunities, the Survey stated that “Banks are generally optimistic of the existence of opportunities to pursue in order to generate the required returns on capital for shareholders.
Bank officials generally alluded to the current stability in the economy; Government’s planned initiatives in the energy, infrastructure and industry sectors, as well as reforms in the agricultural sector as possible sources of business opportunities going forward,” the survey added.
“However, some banks are moderate in their expectation, stating that there could be capital saturation but the risk profile of the opportunities remains unchanged.”
With regards to the other side of the capitalization, “Most bank executives do not believe a sudden growth in the capital will have any bearing favourable on the quality of assets. At best, they expect growth in the loan book, but will not necessarily improve the quality of existing assets.”
It is also prudent to note that most executives also do not believe a sudden growth in the capital will affect profitability positively.
They believe it will be affected more by their competitive advantage and how they organize themselves internally to deliver service to customers.
Improving market presence
On this front, banks are of the view, “that they will seek to develop and/or upgrade technology platforms to improve access to customers. This is largely consistent with recent trends as most banks are taking advantage of advancement in technology to deepen market presence. In the medium to long-term, this is expected to result in process efficiency and cost optimization.”
The survey also noted the diminishing importance of traditional brick and mortar branch expansion but rather digitization will hold sway in developing the transformational agenda of banks.
However, some banks also believed expansion into new areas as important to their current visibility in the market.
Corporate governance
The general consensus was that banks did not pay particular attention to board performance evaluation and that going forward the performance of the board will be critically evaluated.
In addition, the composition of the board will be evaluated, however, “many believe that no significant impact will be made without ensuring that the quality of information made available to the Board is adequate.”
Again, “most banks view the current structure and size of their boards, as well as compensation of board members as adequate, and are therefore unlikely to make any significant changes to these in the short term.”
Top-tier banks
The first quartile banks according to the survey are GCB Bank, Ecobank Ghana, Barclays Bank Ghana, Fidelity Bank, Stanbic Bank, Stanchart and Zenith Bank.
Total operating assets of the first quartile banks grew by 18.9% from GH₵34.3 billion at end of 2016 to GH₵40.8 billion at end of 2017 and approximate 56.3% of the industry’s total operating assets, up from 49.5% as at end of 2016.
With a 45.4% growth in total operating assets, GCB Bank has taken over Ecobank Ghana to hold the largest operating assets in the industry following their assumption of selected assets from UT Bank and Capital Bank.
This contributed to the highest increase in operating assets in the first quartile.
Fidelity Bank Ghana experienced significant growth in its operating assets. This has been funded through active deposit mobilisation to achieve a 22.8% growth in deposits to GH₵4.0 billion and doubling of borrowings to GH₵683.8 million over the same period.
Zenith Bank Ghana moved from the second quartile in 2016 into the first quartile in 2017. Its operating assets grew from GH₵3.2 billion at end of 2016 to GH₵4.3 billion as at end of 2017 representing a 34.6% growth over the period.
This was mainly funded by a 31.3% growth in customer deposits to GHS3.5 billion and at the same time, borrowings tripled to GH₵353.2 million as at end of 2017.