Interview: Julian Opuni
What impact did the recent reforms have on the performance of Ghana’s banking sector?
JULIAN OPUNI: The banking sector is in a much healthier place due to the regulatory reforms implemented by the Bank of Ghana (BoG) – namely, the increase in capital requirements and the introduction of new corporate governance directives. However, in order to adequately assess the impact of these reforms, it is helpful to understand them as two distinct, yet related, sets of measures: one focused on the governance and leadership of institutions, while the other strengthened and modernised the sector to help further develop the economy.
Because these regulations were instituted simultaneously, they are often viewed as a single set of reforms, but each had separate aims. The directives regarding corporate governance created many changes at the management level of the banks, which resulted in higher standards of banking and better compliance with international best practices in the industry. The BoG should be commended for its efforts to clean up the sector.
How would you assess the strength and stability of Ghana’s domestic banks?
OPUNI: Unfortunately, all of the banks that either lost their licences or were consolidated after the reforms were Ghanaian. However, the local banks that remained are stronger than ever. The challenge for the near future will be managing the protracted changes that the financial sector as a whole is undergoing following the BoG’s report on the health of banks in 2017. The clean-up of microfinance institutions and savings and loan houses has continued throughout 2018 and 2019. As such, the general public perceives the financial sector to be undergoing continuous disruption. Until the process is completed, there will be some concern about a lack of confidence in domestic financial actors. Fortunately, the more prudent banks adopted an approach that enabled them to separate the safe from the unsafe microfinance institutions and savings and loans houses. Therefore, the involvement and exposure of banks to those segments and to related instability is quite low. Nonetheless, there are challenges related to asset management, pension funds and rural banking within the wider ecosystem due to the high levels of interconnectivity within the system.
To what extent has technological innovation widened financial inclusion to date?
OPUNI: Ghana is largely an economy of small and medium-sized enterprises. This means the market is fragmented, with many businesses and individuals lacking access to capital. Full inclusion will not be realised solely by enabling them to move money digitally; there will still be a need to widen access to finance and insurance, and to create a culture of savings. Financial inclusion in Ghana has primarily been driven by telecommunications operators on the basis of peer-to-peer payments. The next step will be to create a cash-lite economy with digital access to the full gamut of financial services and credit. Certainly, this will require a strong regulatory environment in order to avoid abuse, but it will be of great benefit to the economy overall. This shift will require extensive collaboration between banks, financial technology (fintech) companies and telecoms firms.
Banks are, at times, hindered by their own internal bureaucracy, limited agility and regulatory constraints, which can delay the speed of delivery to the market and prevent institutions from thinking outside the box. However, there is the opportunity for banks to leverage mutually beneficial partnerships with innovative and astute fintech firms to support their growth agenda. Such collaborations facilitate the competitive advantages gained from an agnostic platform, rather than closed end-to-end systems.
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