Interview : Daniel Addo
In what ways have indigenous banks been increasing their presence in the market?
DANIEL ADDO: Indigenous banks have played a vital role in the Ghanaian economy, and today their role is growing. Historically, their presence greatly outshone foreign banks, which were largely European or South African. However, in 2003 the banking sector began a growth path that was stimulated by an influx of African banks, mainly Nigerian, which led to foreign banks outnumbering their indigenous counterparts for the first time. The differences between foreign and indigenous banks can be subtle, but a fundamental distinction is that they have parent holding companies incorporated outside of the country in which they are operating.
Foreign institutions have traditionally avoided small and medium-sized enterprises (SMEs), focusing instead on large corporate and multinational accounts. This is because such companies tend to dominate the market and the associated credit risk is usually much lower. However, with the minimum capital requirement increasing in 2018 to GHS400m ($86.4m), there may be an increased risk appetite that could lead to the expansion of lending portfolios. In the past indigenous banks have played the primary role of supporting local residents and firms, particularly SMEs. Considering the constantly evolving environment, indigenous institutions will likely continue to increase their support for local industry, while simultaneously boosting customer service to corporate customers. In the longer term, the growing strength of Ghanaian banks means that regional expansion is attainable, though this goal should be approached cautiously. It will be new territory for our financial institutions, and our banks have to be successful locally before venturing into the sub-region.
Though the banking sector was turbulent in 2018, indigenous banks will continue to grow naturally and sustainably as the market recovers. The sector is now in better shape following structural reforms, and the ability of local firms to compete has increased significantly.
How is the growing middle class influencing the range of banking products on the market?
ADDO: We are seeing a growing demand for personal lending and electronic banking products. This is because the middle-class customer segment is increasingly technologically savvy and demonstrates higher trust in the lending sector. Middle-class borrowers are globally minded, well travelled and demand quality services similar to what are offered by large international banks.
The perception of value is also changing, and in order to properly service this change there is growing need for customer intimacy: the ability to more effectively tailor products to the customer. Technology is central to driving this development, and local financial technology firms continue to play an important part in this across the financial services sector. Currently, this mostly concerns payment solutions.
Although the sector is still using data analytics at a very basic level, we see that swiftly changing. This will help promote better understanding of buyer values and lead to products and services that meet them.
What is the state of the lending environment for SMEs, and how does it affect the economy?
ADDO: The SME space is vast, and if well funded will help fuel the overall growth of the economy. This can be a challenge in countries that are still working to advance credit bureaux and digital identities, however, it is necessary that a growing economy focus on increasing lending support to this segment.
In Ghana we have SME departments at banks, but we have not yet perfected the art of lending to this customer segment. The challenge is to develop a larger number of specialists to help conduct business in this sector proficiently. The advisory side must also be bolstered, as business skills within the SME space can be lacking. Banks would then be able to offer improved advice and to help when problems occur, which would result in lower-risk loans and longer-term customers.
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