2018 Ghana Banking Survey Having secured the new capital; what next for banks? August 2018 www.pwc.com/gh Contents - A message from our CSP 2 - A message from the Executive Secretary of Ghana Association of 6 Bankers (GAB) - A message from our Tax Leader 8 1 Recapitalising Banks: The Nigerian Experience 12 2 Survey findings 16 3 An Overview of the Economy 28 4 Key developments in the banking industry 32 5 Quartile analysis 36 6 Market share analysis 56 7 Profitability and efficiency 66 8 Return to shareholders 72 9 Liquidity analysis 78 10 Asset quality analysis 84 - Appendix: A-List of banks in Ghana as at June 2018 92 - Appendix:B-Glossary of key financial terms, equations and ratios 93 - Appendix:C-Our Business School 94 - Appendix:D-Our leadership team 95 - Appendix: E-List of abbreviations 96 - Key Contacts 97 PwC 2018 Ghana Banking Survey 1 A message from our CSP number of banks has reduced in the wake It would seem that tier 1 and 2 banks of a number of decisive actions taken by would rely on the capitalisation of the regulator. their reserves due to the relatively larger reserves of these banks. Foreign The subject of an increased minimum banks in the industry may rely on fresh stated capital has set off a rather charged capital injection from their parent conversation in bank boardrooms, the entities, although this may serve as a regulator’s and shareholders’ offices, complementary source, considering bank Executive Committee meetings, that they may also rely on distributable bank personnel huddles, key customers reserves. Some banks have also and depositors’ homes. The conversation announced plans/ efforts to raise capital has carried on for a while on traditional locally. However, with the Ghana media and social media platforms too. capital market experiencing bearish Among the myriad of questions asked, conditions, generally, it would seem that one that rang loud and clear was that banks would find it difficult to raise the Vish Ashiagbor asked by many bank CEOs – “What would capital needed to meet the regulator’s we do with all that capital, assuming we requirements. In all of these, it would Country Senior Partner raise all of it?” seem that the local banks are hardest hit. Curiously, many of these banks, for which This question has provided the theme for the first and second options seem beyond this year’s banking survey, as we felt it their means, appear averse to the third would indeed be useful to find out from option. However, BoG, on 14 August the leadership of the banking industry 2018, approved a request by BSIC and the ideas they are contemplating for Omni Bank to merge their businesses, surviving this regulatory shakeout, and whilst five other local banks have had – beyond the deadline – their plans for their licenses revoked by the regulator Build up to this building a stronger and thriving business. and their businesses consolidated into year’s survey one entity, now called Consolidated Bank Ghana (CBG) Limited. Meeting the new Bank of Ghana (BoG), through a directive minimum capital So, though it was not disclosed as an issued on 11 September 2017, increased requirement express objective of the minimum capital the minimum stated capital requirement increment, we have seen some amount of universal banks operating in Ghana of consolidation already, although these from GHS120 million to GHS400 million Truth is that this is not the first time have been regulator-induced based on the and required that banks comply by the that the banking industry in Ghana has deteriorating asset quality, inadequate end of December 2018. This, BoG stated, been faced with a mandatory minimum capital and liquidity challenges faced by is to “further develop, strengthen and capital raise. It would appear that the the merged banks. We expect that the modernise the financial sector to support key difference this time is with the industry would have experienced some the Government’s economic vision and deadline – no phased timelines for any more consolidations by the end of the transformational agenda”. player category. 2018 financial year. Following the directive for banks to Banks, generally have three main options increase their minimum stated capital, for meeting the new minimum capital BoG, in line with their legislated requirement; i.e. (1) Injection of fresh Lessons from authority, has taken some regulatory capital; (2) Capitalisation of reserves; Nigeria actions to deal with troubled banks. In and (3) Business consolidations. And, a period of less than a year, ahead of at the time of writing this report, it was the deadline given by the regulator for fairly apparent which banks or categories Considering that minimum capital raises meeting the new minimum capital, the of banks are using what options. are not new in this region, we felt it would be instructive to find out a bit more about PwC 2018 Ghana Banking Survey 2 A message from our CSP the Nigerian experience to throw light on some of the “likely futures” that the Ghana banking industry might evolve into after expiry of BoG’s deadline. Below are a few significant developments in the Nigerian experience, which we think are appropriate to highlight for the various stakeholders in the Ghana industry to mull over. In summary, the Central Bank of Nigeria (CBN), in 2005, undertook a recapitalisation exercise that saw the minimum capital for banks in Nigeria raised to N25 billion (US$192.2. million1) from N1 billion (US$7.7 million1) for existing banks and N2 billion (US$15.4 million1) for new entrants. • Total number of banks in Nigeria shrank from 89 to 25 • The Nigerian banking industry, arguably, transformed into one with stronger banks that had the capacity to compete at a regional level, beyond Nigeria. The Ghana banking industry experienced an influx of Nigerian banks including Zenith Bank, InterContinental, GT Bank, UBA and Access Bank. • The industry’s total assets grew from N3,753.3 billion (US$28.9. billion1) at December 2004 to N4,515.1 billion (US$34.7. billion1) at December 2005, enabling banks to finance bigger projects and investments. These positive changes came with some challenges. To address the challenges that arose in the wake of the industry’s consolidation, and enhance the attractiveness of the industry, the CBN introduced various control measures. We have discussed many of these challenges and the CBN’s responses in this report. 1all USD Conversions reflect CBN’s average interbank rates for December 2005 PwC 2018 Ghana Banking Survey 3 A message from our CSP A message from our CSP We should note that a common strain found in both regulators of the two jurisdictions relates to their proactive approach. In similarity with the Nigerian experience, BoG has already implemented interventions as if in anticipation of some of the developments that arose in the Nigerian banking industry, and also to minimise the probability of a “new, stronger banking industry” soon slipping into problems that are the result of weak corporate governance practices. What do bank leadership and executive teams aim to do with the new expanded capital? The survey revealed that bank executives are preoccupied with improving the operational efficiency of their businesses, as well as increasing their earning potential. As a result, they are likely to deploy part of their new/ increased capital into programmes or initiatives that will help them to achieve these. Digital, improved service delivery, and enhanced customer experience were among the common words and phrases used by bank executives in their conversations with us. Many bank executives were of the view that these were key to achieving increased market presence or deeper market penetration, and were important for achieving cost efficiency in operations as well as increased earning potential. The traditional route to market involving branch expansion via brick and mortar was characterised as outdated and seemed to lack support among the majority of bank executives who also described it as not cost effective. Investments in technology would also be targeted at improving banks’ PwC 2018 Ghana Banking Survey 4 A message from our CSP A message from our CSP risk management systems to ensure In conclusion that capital is adequately protected and liquidity is prudently managed in conformity with regulatory hough not mentioned as an expressed objective, a key, requirements. Additionally, technology unavoidable, result of the new minimum capital requirement investments would aim at generally would be consolidation. The surviving banks are expected to guarding the business against the T be stronger and well capitalised. If bank executives’ responses to heightened cyber security risks in a our questions during the survey are anything to go by, the industry digital operating environment. is set to see quite some exciting times in 2019 and the years after. We expect to see the “bold and quick” hit the streets with some Interestingly, bank executives were innovative digital products that would excite customers about less concerned about new product banking with some interesting experiences. These are likely to be development, observing that the existing products that have been improved through digitisation. industry was awash with many products Alongside, we expect the regulator to continue examining the already. In their view, the challenge remaining players through enhanced supervision and compliance has been with market penetration and/ across every aspect of their businesses, from governance to or cost-effective distribution of these technology, to ensure that problems are identified early and nipped products. Hence, the focus will be on in the bud. innovating around how to digitise these products and distribute them widely Banks will continue to need help to realise their visions around using digital channels.