In 2020 discussion around the Ghanaian banking sector was upbeat, buoyed by promising macroeconomic conditions, with government bonds receiving increased attention from international investors. However, starting in 2022 the West African country has been navigating through a period of economic uncertainty marked by high inflation and sector contraction in real terms amid persisting global economic challenges. Nonetheless, there are reasons to be optimistic. The government reached an agreement with the IMF in December 2022, which has set ambitious goals for fiscal stability in the country. It has also successfully swapped domestic debt for new securities through the Domestic Debt Exchange Programme (DDEP), launched in 2022, and the sector continues to experience new developments in financial technology (fintech) and financial inclusion.
Structure
At the start of 2023, 23 banks were licensed to operate in Ghana, down from 36 in 2017 after the Bank of Ghana (BoG) began a regulatory crackdown. Of the 23, 14 were foreign and nine were local. Two of the foreign banks are subsidiaries of globally systemic important banks headquartered outside the capital Accra including the UK’s Standard Chartered, and France’s Société General. Nigeria’s big-five banking groups – Access Bank, Zenith Bank, FBN Holdings, United Bank for Africa and Guaranty Trust Holding Company – all operate subsidiaries in Ghana. Four international institutions have representative offices in Ghana: Citibank Ghana, Ghana International Bank, the Export-Import Bank of Korea and the Bank of Beirut.
There there were 147 rural and community banks (RCBs) in comparison to 144 in 2022, while deposit-taking microfinance institutions numbered 132, a decrease from 137 in 2021. The number of finance houses remained steady at 11, savings and loans companies gained one new entrant for a total of 26 companies, and the number of microcredit institutions fell from 31 to 29. Lastly, the number of foreign exchange bureaus operating in the country fell from 415 to 397.
For the fourth consecutive year Ecobank held the most deposits, with a 13.6% share and an increase of 1.9% since 2021. The next five-largest deposit money banks were GCB Bank; South Africa’s Standard Bank operating as Stanbic Bank Ghana; Absa Bank Ghana, a subsidiary of Absa Group Limited in South Africa; Fidelity Bank and Consolidated Bank Ghana. These six banks, comprising about a quarter of the banks operating in the country, held 53% of total deposit share in 2022.
Oversight
Regulators play a critical role in maintaining stability, transparency and accountability in Ghana’s financial services sector. The regulatory framework is designed to foster a competitive and resilient banking industry, ensuring the sector’s contribution to the country’s economic growth and development. Established in 1957, the BoG is responsible for supervising, regulating and directing banks, non-bank financial institutions, and the country’s payment and settlement systems. In 2016 new legislation gave the BoG more supervisory power over all deposit-taking entities. The bank, which has been led by Governor Ernest Addison since 2017, conducts regular supervisory and on-site inspections of banks to assess their financial health, risk management practices and compliance with regulations.
Since its establishment in 2019, the Ghana Deposit Protection Corporation, led by former business executive Pearl Esua-Mensah, aims to protect individuals’ deposits from losses associated with bank failures. The scheme was developed in 2012 as a result of studies by the BoG, the Government of Ghana and KfW, a German government-owned development bank. The organisation manages two funds: one from which reimbursements for bank deposits are made and a second for reimbursements for deposits in specialised and deposit-taking institutions (SDIs).
The BoG’s 2015-16 appraisal of local banks transformed the sector. Its studies found that local banks had major liquidity and asset quality issues. In September 2017 the BoG raised the minimum capital requirement to GHS400m ($68.4m at the time), up from GHS120m ($20.5m at the time), helping improve business practices and weak capital positions, and culling weaker banks that posed a danger to the economy. As such, the number of banks has declined substantially. As of mid-2021 the BoG had collected GHS1.7bn ($15.4m) out of the GHS25bn ($2.3bn) owed by defunct institutions.
In 2019 the BoG revoked the licences of 347 MFIs and 23 savings and loans companies, as well as finance houses, and put them into receivership due to illegal related-party transactions made by these institutions. Subsequently, in August 2022 the BoG shared that it had uncovered GHS1.1bn ($99m) in related-party transactions by the defunct institutions and that the joint receivers had uncovered GHS116.7m ($10.6m) in untraceable investment. The BoG collaborated with the Economic and Organised Crime Office (EOCO), a law enforcement and intelligence agency established to investigate and prosecute financial crimes under the Attorney General, to uncover this investment. As of August 2022, 13 SDIs have been forwarded by the EOCO to the Attorney General for prosecution.
To provide banks more leeway to recover from the impact of the DDEP, the BoG temporarily relaxed certain regulations on the sector in December 2022. The minimum capital adequacy ratio was reduced from 13% to 10% and allowed losses from DDEP to be reflected for three years. As of the end of 2022 Consolidated Bank Ghana and Universal Merchant Bank were the only banks with a capital adequacy ratio of below 10%, resulting from capital erosion in relation to their holding of government bonds. The BoG has instructed these banks to submit their plans for recapitalisation by the end of the third quarter of 2023. The central bank also reduced the cash reserve ratio from 14% to 12%, though in April 2023 it reversed this decision to alleviate concerns about excess liquidity in the market.
Performance
Total assets were GHS221bn ($20.1bn) at the end of 2022 compared to GHS180bn ($16.3bn) in 2021 and GHS149bn ($13.5bn) in 2020. Though assets have grown in recent years, the rate has not kept pace with inflation. The country had a headline inflation rate of 35.2% in October 2023, compared to 54.1% in 2022 and 12.6% in 2021.
In 2022 the largest component of banks’ assets was investment, representing 36% of the total. Two segments, cash and short-term funds, and loans, shared the second-place, each constituting 28% of banks’ assets. Property, plant and equipment made up 3% of the assets, and the remaining 5% were categorised under “other.” On the liabilities side, deposits accounted for 71% of the total, marking an increase from 67% in 2021. Borrowings comprised 9%, while reserves and paid capital constituted 8% and 5%, respectively. The only liabilities that experienced an absolute decline were borrowings, decreasing by 14% from 2021. Other liabilities and deposits expanded by 36% and 30%, respectively, with the latter reaching GHS158trn ($14.3trn).
As of June 2023 the sector had assets of GHS242bn ($22bn), up 21.2% year-on-year. This was over a period in which year-on-year inflation was 42.5%, meaning in real terms assets contracted 21.3% since June 2022. Deposits, meanwhile, totalled GHS188bn ($17.1bn), up 42.8% year-on-year, which comprised 77.4% of liabilities compared to 71.5% at the end of 2022.
The sector’s return on assets before tax rose to 5.5% as of June 2023, up from 3.1% at the end of 2022 and 4.6% at the end of 2021. Post-tax return on equity, which stood at 21% at the end of 2021, fell to 14.6% at the end of 2022 before more than doubling to 37.6% by June 2023. According to the most recent data available, the return on earning assets stood at 4.3% at the end of 2022, below the 6% seen at the end of 2021. In terms of liquidity, the ratio of core liquid assets to total assets stood at 27.7% as of June 2023, equal to the close of 2022 and up from June 2022 (23.4%). Meanwhile, the ratio of core liquid assets to short-term liabilities fluctuated from 30.2% in June 2022 to 35.3% in December 2022 and 33.4% in June 2023.
Government Bonds
Ghana’s government continues to diversify its bond offerings, introducing new instruments like green bonds and social impact bonds to align itself with global trends toward sustainable and responsible investing. In July 2021 Ken OforiAtta, then minister of finance, announced that Ghana would seek to issue green and social bonds to fund sustainable development projects. In February 2022 the Securities and Exchange Commission opened a dedicated green bond exchange in collaboration with the International Finance Corporation and in April of that year requirements and guidance on how to issue sustainable bonds were released. The focus on green bonds highlights Ghana’s commitment to sustainable finance and addressing environmental challenges while attracting socially responsible investors.
The most consequential development for Ghanaian government bonds between 2022 and 2023 was the DDEP. Facing a strong US dollar, the cedi fell by 57% between January and November 2022, inducing uncertainty amongst holders of government debt. Ghana announced a suspension of payments on selected external debts and launched the DDEP, an invitation to debt holders to swap their bonds for newly issued bonds with different rates and maturities. This was also done to qualify for an IMF programme. The DDEP implied a loss for both Ghanaian banks and international investors in Ghanaian bonds.
After five extensions of the programme’s deadline, in February 2023 the Ministry of Finance announced that it closed its domestic debt swap with 85% participation out of a total of GHS97.7bn ($8.9bn) of eligible domestic bonds, and markets reacted positively. The new securities provided a reduced coupon of 8.4% compared to an average of 19% for the old bonds. This result, along with assurances under the G20’s Common Framework, led the IMF to approve a programme in May 2023, disbursing an initial $600m.
The next step in the debt restructuring programme was for Ghana to reach a deal with its Eurobond holders, with the country setting a self-imposed deadline of September 2023 to conclude talks. Shortly after the domestic debt swap was closed, Ghana defaulted on its Eurodollar debt, missing a coupon payment deadline for a bond maturing in 2026. In addition, as of late July 2023 the country’s pension funds had been offered to swap their GHS31bn ($2.8) worth of bonds bearing an average coupon rate of 18.5% with two new bonds carrying an average 8.4% interest rate.
The government will also provide additional new securities and another instrument that offers 10% interest, enabling pension funds to receive a better average coupon. According to the Ministry of Finance, this was done to prevent pensioners from losing money while alleviating the government’s cash constraint during the initial years after the exchange to help comply with the provisions of the IMF programme.
Lending
Annual nominal growth in outstanding credit extended by banking institutions stood at 30.2% at the end of 2022, an increase from nominal growth of 12.6% at the end of 2021. However, this represented a real contraction of 15.5%. Total outstanding credit grew from GHS53.8bn ($4.9bn) in December 2021 to GHS70bn ($6.4bn) in December 2022. Already at the 90% in 2021, the proportion of credit to the private sector grew slightly to 91.1%. Outstanding credit to the private sector stood at GHS63.8bn ($5.8bn) in December 2022, compared to GHS48.4bn ($4.4bn) year-on-year, representing a 14.5% real contraction.
The sector representing the largest amount of outstanding credit was services, totalling GHS20.9bn ($1.9bn) at the end of 2022, followed by commerce and finance (GHS11.5bn, $1bn), manufacturing (GHS7.1bn, $644.7m) and construction (GHS6.5bn, $590.2m). The two sectors with the largest percentage growth were export trade at 92.8%, and mining and quarrying, at 91.4%. Non-performing loans registered at 14.8% in 2022, a slight increase on the rate of 15.2% that was seen in 2021, with a net worth of GHS27.9bn ($2.5bn).
Interbank lending usually occurs at the Ghana reference rate which tends to follow the BoG’s monetary policy rate. As of August 2023 the Ghana reference rate was 29.28%, down from 32.72% at the beginning of the year and up from 24.22% in August 2022. The Ghana reference rate usually stayed within a range of 12-15% prior to 2022. However, the monetary policy rate stood at 27% at the end of 2022, having risen throughout the year from a base of 14.5% in January. In 2023 the policy began to decelerate, rising 2.5 basis points between January and April. The government is targeting a headline inflation rate of 18.9% at the end of December 2023 and 6-10% in the medium term.
Innovation
Recognising the importance of small and medium-sized enterprises (SMEs) in the economy, financial institutions are launching digital tools and platforms tailored to their needs, including digital lending and cash-flow management solutions. “The rapid market entry and subsequent growth of fintech and telecommunications companies in Ghana is reshaping banking,” Julian Opuni, managing director at Fidelity Bank, told OBG. “It is creating both challenges and opportunities for traditional banks and fund managers by forcing them to adapt and be more innovative.”
In 2023 the Securities and Exchange Commission (SEC) partnered with EMTECH, a Ghanaian software company, to create a regulatory sandbox. The aim is to foster collaboration among regulatory agencies, fintech start-ups and SMEs, developing an effective regulatory environment to help new fintechs to thrive.
The ongoing rise of digital banking is perceived as a positive trend for the sector. This evolution has enabled banks to automate their processes, boost efficiency and omit human errors. At the same time, it has bolstered innovative platforms for customer acquisition, and improved decision-making via big data and data analytics tracking consumer behaviour.
On the cybersecurity front, banking services are integrating biometric authentication methods such as fingerprint and facial recognition, and artificial intelligence-driven threat detection. These measures enhance security and streamline customer experiences, reducing reliance on traditional passwords.
Penetration
As of 2023, 39.2% of Ghanaians had bank accounts, down from 58% in 2019, according to Statista. Mobile money payments by Ghanaians climbed in the first half of 2023, rising 78% to reach GHS859bn ($78m) compared to the same period in 2022. This is despite the existence of a 1% e-levy on all online electronic transactions. The levy was set at 1.5% in May 2022 but reduced to 1% in January 2023.
Banking penetration has increased in recent years following sustained government efforts to boost financial inclusion, with account ownership doubling between 2011 and 2017. As of January 2023, 39.2% of the population aged 15 or over had a bank account, down from a high of 57.7% in 2021.
The banking sector has further intensified efforts to reach rural and remote areas, addressing the longstanding issue of limited financial services in these regions. Collaborative projects between banks, community organisations and telecommunication companies are establishing banking points and mobile banking vans to offer services to underserved populations. These initiatives have helped accelerate financial inclusion.
Outlook
Like much of Ghana’s economy, the trajectory of the banking sector in the coming years will depend on the country’s ability to contain inflation while fostering sustainable growth. Though DDEP was a necessary step to stem further economic crises, the measure affected banks’ balance sheets in the short and medium terms. Furthermore, local banks have voiced concerns about liquidity levels, capital adequacy requirements, interest income and investor perceptions. However, the successful domestic debt swap and initial IMF disbursement have injected muchneeded optimism into the banking sector and the wider economy. Additionally, the sector is well positioned for renewed growth on the back of the steady progress seen in technology adoption and financial inclusion.
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