The future of banks that are majority-owned by domestic private interests in Ghana can be challenged in the not-distant future due to the strict application of the Basel II and III standards, Groupe Nduom Research has said.
The GN research on local ownership of banks as against foreign ownership across Africa cited Ivory Coast, Nigeria and South Africa as the only countries whose banks are majority-owned by domestic investors. The Ivory Coast had 100% local ownership, 80% by Nigerians and 76% in South Africa. In Ethiopia, state-owned banks predominate and in Mozambique, Republic of Congo, foreign-owned subsidiaries hold the most assets.
Between 1992 and 2006, the local ownership of banks in Ghana averaged 61% but that figure has fallen to an average of 48% between 2007 and 2016. In 2003 the local to foreign ownership ratio was about 60%: 40%. This fell to 54% local ownership to 46% foreign ownership by 2006 and further to 44% local ownership to 56% foreign ownership by 2011. It, however, averaged 46% for local ownership and 54% foreign ownership in the past six years. This figure has dropped to 21% local ownership in Ghanaian banks for 2017 as published by the Africa Report No. 93 edition.
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Though the deregulation of the financial sector resulted in an increase in the number of foreign banks, it can also be seen that generally, the increase in the minimum capital requirement for banks has guaranteed the survival of the foreign banks than local ones.
The Bank of Ghana on September 10 introduced the Internal Capital Adequacy Assessment Process (ICAAP) under the Basel II framework. The ICAAP will require banks to more than treble their minimum capital to GHS400 by December 31, 2018.
This is the fourth time in about 15 years that the BoG has increased the minimum capital requirement for banks, with the current increase being the second highest. Early is 2003, BoG directed all banks to increase the minimum capital to GHS7million by the end of 2006. In 2008, the bank lifted the minimum capital requirement from GHS7million to GHS60m giving foreign banks two years and local banks five years to comply with the rule. In 2012 it again raised to GHS120 million, mostly on the reason of the expansion of the economy.
The Bank of Ghana announced that all banks must increase their minimum capital to GH¢400 million by December 2018. This is to increase the capital base of the banks as it is important for ensuring financial sector stability. It will also make it possible for banks to reduce cost through economies of scale leading to reduced borrowing cost. Also, banks with large capital can easily diversify their investments to avoid being vulnerable, should some sectors of the economy take a turn for the worse. Aside this, large banks can easily be supervised by the regulator than many small banks.
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