Banking reforms so far: topmost issues on the minds of bank CEOs August 2019 www.pwc.com/gh Table of contents CSP’s message 2 GAB CEO’s message 4 Tax Leader’s message 5 1 Economy of Ghana 7 2 Survey analysis 12 3 Banking industry overview 35 4 Total operating assets 39 5 Market share analysis 44 6 Profitability and efficiency 56 7 Return to shareholders 64 8 Liquidity 69 9 Asset quality 79 Appendices 84 PwC 2019 Ghana Banking Survey 1 CSP’s message their banks thus far, as well as the those related to the new minimum challenges and opportunities that capital requirement: they foresee. ࡟ Heritage Bank Limited (HBL) and Highlights of the Premium Bank Ghana Limited (PBG) had their licences revoked. banking sector The reasons provided by BoG for the revocation of their licences reforms were insolvency in the case of Perhaps, one of the most significant Premium bank and questionable components of the banking sector source of capital for Heritage reforms is the new minimum capital bank. directive issued on 11 September ࡟ Bank of Baroda (BoB) “closed 2017. The directive required shop” and exited the market on universal banks operating in Ghana their own volition also for reasons Vish Ashiagbor to increase their minimum stated related to the new minimum capital to GHS400 million by the capital requirement. Country Senior Partner end of 2018. ࡟ BoG approved three mergers Following the deadline for involving six banks, effectively Background to this compliance, the changes in the accounting for three more exits. year’s survey banking sector have largely gone in The approved mergers are: 1. the direction expected – decrease First National Bank & GHL Bank Last year, we obtained and shared in number of banks – although Limited, 2. Energy Bank & First with you insights from bank the impact may not have been as Atlantic Bank and 3. Sahel - executives on how banks intended significant as first thought. The Sahara Bank & Omni Bank. to deploy increased capital obtained total number of banks currently Subsequent to the new minimum in compliance with the new capital operating as universal banks in capital directive, BoG and the requirement directive issued by Ghana stands at twenty-three (23). Government have undertaken some Bank of Ghana (BoG). This year’s In effect, the number of banks has complementary actions aimed at survey, a build-up on last year’s shrunk by eleven (11), representing a consolidating the expected gains survey, is premised on the wider 32% decline from the 34 banks that from the bank recapitalisation banking sector reforms being operated as universal banks prior exercise and supporting a wider driven by BoG with an overarching to the coming into effect of the new financial sector clean-up and objective of modernising and minimum capital directive. transformation. Whilst some strengthening the banking sector Out of the eleven (11) banks that of these were covered in our to adequately support economic exited the market following the GBS 2018, we have noted some growth and transformation. In this issuance of the new minimum additional ones that were initiated regard, our 2019 Ghana Banking capital directive, three were after the publication of our GBS Survey (GBS 2019) has been assessed as insolvent by BoG and 2018 report. These include: themed “Banking reforms so far: had their licenses revoked even topmost issues on the minds of ࡟ Directive for Voluntary Winding before the deadline for compliance. bank CEOs”. up of Banks and Specialised These are: UniBank Ghana Limited Deposit taking Institutions- The banking sector reforms date (UGL), The Beige Bank (TBB) and issued in September 2018. back to 2017, when BoG embarked The Royal Bank Limited (TRB). ࡟ Cyber and Information Security on a comprehensive reform agenda, Sovereign Bank Limited (SBL) and Directive- issued in October with the objective of cleaning up the The Construction Bank Limited 2018. banking industry and strengthening (TCB) had their banking licences the regulatory and supervisory revoked for obtaining them by ࡟ Directives for Forex Bureaux in framework for a more resilient false pretences through the use of Ghana- issued in October 2018. suspicious and non-existent capital, banking sector. Our survey sought ࡟ Finalisation of Corporate according to the Bank of Ghana. to obtain insights from bank CEOs Governance Directive 2018- and other top executives on the The remaining six have had to either issued in December 2018. impact the reforms have had on exit the market or merge with other ࡟ Creation of Ghana Amalgamated banks for various reasons, including Trust (GAT) Plc as a Special PwC 2019 Ghana Banking Survey 2 CSP’s message Purpose Vehicle (SPV) to support This, according to our survey supervision and compliance across the capital requirement of respondents, has placed banks in the industry in order to consolidate selected banks- January 2019. the position to partake in bigger and sustain the gains made so far. ticket transactions, which has the Going forward, banks will have to Impact of reforms so potential of expanding the asset properly streamline the various base of banks and increasing far: Views from CEOs aspects of their businesses, if their profitability. and other top bank they are to effectively manage ࡟ The view that investing the potentially complex web of executives significantly in technology and operational efficiency, liquidity and creating agile businesses over risk management issues, whilst Broadly, the outcome of our survey the medium term (i.e. digitisation) maintaining a desired level of suggests that, out of the several will be crucial for meeting profitability. Market research and reforms and emerging trends seen customer demands and growing strategy formulation, restructuring, in the banking sector over the profitability. digitisation, systems and process last couple of years, the capital Also, we noted that more than 80% improvement, data and analytics requirement directive; the full of the banks surveyed expect the and risk management represent implementation of the minimum performance of the economy to some of the key activities banks capital directive; and issues relating have the greatest impact on their may undertake to help achieve to digitisation have had the most performance in the medium term, targets around profitability, liquidity, impact on the banking business in with about half of the respondents risk management, asset growth, Ghana. expecting various Government capital adequacy, etc. Our Financial Indeed, our survey results indicates initiatives to drive revenue growth Services Industry Group has a that about 82% of respondents going forward. In contrast, banks wealth of knowledge and experience surveyed included the capital commonly have a less optimistic in these areas and are always requirement directive in their top view of the impact of regulations on available to share our expertise three most impactful reforms. The their business, believing they would with banks, investors and other full implementation of the minimum mostly lead to an increase in the interested stakeholders. Do contact capital directive also attracted cost of their operations. us on 0302 761 500. same level of priority from about A detailed discussion on our survey Happy reading! 73% of respondents, whilst about findings is presented in section 2 of 45% of respondents ranked issues this report. related to digitisation as part of their three most impactful reforms thus far. This observation, as noted Conclusion from our discussions with the bank With the deadline for complying executives, was underpinned by with the new minimum capital a number of factors, key amongst requirement now behind us, which include: the uncertainty that plagued ࡟ The need to undertake significant the banking sector during the processes and systems changes implementation period seems to to achieve upgrades in the areas have waned significantly. Amidst of stress testing, counterparty all the changes, compliance with risk and capital management various reforms, and a reduction in infrastructure, all in a bid to meet the number of banks with universal the capital requirement directive. banking licences, Ghana’s total banking sector operating assets ࡟ The expanded capital base (based on participating banks) of banks achieved through increased by 11.3% (from 2017) the implementation of the to GHS80.64 billion indicating a minimum capital directive, resilient sector. coupled with an increase in the value of the single obligor limit Having initiated most of the reforms on the back of increased net seen in the sector over the last two worth of banks following the years, we expect BoG will take injection of additional capital. the necessary steps to enhance PwC 2019 Ghana Banking Survey 3 GABCSP’s CEO’s message message The CEO’s message – Ghana Association of Bankers Ghana’s Financial Services sector adequate burden on the banks has attracted a lot of attention in the around risk management. last few years. Beginning with the Aside risk management, there Banking Sector, the Regulator (Bank are other regulatory steps being of Ghana), took steps not only to taken by the Bank of Ghana address the risks in the sector but around corporate governance, also prepare existing banks for the cybersecurity, payment systems etc. growth expected in the Ghanaian which I believe bank executives will economy. Bank of Ghana’s new spend some of their time dealing Capital Requirements Directive with. (CRD) increased the minimum Daniel Ato Kwamina Mensah regulatory monetary capital for Let me finally touch on technology, Chief Executive Officer, universal banking licence holders an area which is top of mind for Ghana Association of Bankers and became the focus of most bank most bank CEOs in my view. executives until the end of 2018. In a few years, I anticipate the digitisation of most banking After the capital raise, what is next? activities. Fintechs will change how What are bank executives thinking traditional banking business looks about now after having met the today.