Interview: Abena Osei-Poku
To what extent did the banking sector successfully navigate the Covid-19 pandemic?
ABENA OSEI-POKU: The banking sector demonstrated notable resilience during the pandemic, highlighting the fact that the sector is regulated, well capitalised and broadly profitable – despite strong competition. The sector has sufficient capital buffers to absorb potential losses from lending, even in the current challenging operating environment. Indeed, capital adequacy has consistently outpaced non-performing loans, even at the height of the pandemic. As a result of bold regulatory interventions by the Bank of Ghana over the course of the health crisis, the sector continues to be profitable. Banks have found innovative ways to improve the customer experience and have been able to create significant value for shareholders. However, private sector growth has been slow. As a result, lenders are much more wary of customers’ business risks, and many potential clients are experiencing difficulty accessing finance as banks work to mitigate risks.
What short- and long-term effects did the pandemic have on the banking industry?
OSEI-POKU: The pandemic highlighted the integral role that banks play in the economy, as well as the challenges they face. The sector has had to build financial buffers and set aside significant amounts of reserves for bad debt provisioning. Banks offered relief to hard-hit businesses and customers – especially those in hospitality, education and aviation – typically in the form of payment holidays. Banks also restructured facilities to provide liquidity support, which is not traditionally done. Despite these efforts, the volume of loans to the private sector was not as high as it normally would be, given such measures. Even so, while most banks saw a reduction in income and profitability over this period, the sector as a whole fared better than other parts of the economy.
One upside of the pandemic was the accelerated pace of technological innovation and digital transformation. From customer channels to business processes, this had been part of many banks’ strategies before the pandemic, but it was not at the forefront of development plans. In addition to operational improvements, the pandemic gave the sector a more human face through corporate social responsibility efforts to support the communities in which we do business. The sector donated to and supported health practitioners and individual banks acted as well, from constructing hospitals and other facilities, to supporting the less fortunate by paying their bills and supplying food. This more humanising way of doing business is here to stay.
How widespread has the adoption of environmental, social and governance (ESG) principles been in the finance sector?
OSEI-POKU: Ethical investing is a trillion-dollar industry globally. The Covid-19 pandemic has reinforced the trend of investors preferring to put their money in investment vehicles that result in positive environmental and social dividends, but in Ghana this concept is in the nascent stages of development. ESG investing principles are widely known and they are beginning to gain ground in the local finance sector. The country has the awareness and knowledge to implement them, but Ghanaian investors have traditionally prioritised yield and risk.
In mid-2021 the government announced it would issue $2bn in social bonds by the end of the year to fund education development programmes. This will be the continent’s first social bond and will be an opportunity to introduce local investors to the benefits of ESG principles. The issuance will help motivate future ethics-driven investment allocations; while these have been widely discussed, there have not been many opportunities to put them into practice.
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