Ghana’s Issahaku Urges Lenders to Consolidate to Fuel Growthby
Central bank to set new capital requirement for banks in 2017
New cash threshold for banks aims to support GDP growth agenda
Ghana’s central bank expects mergers and acquisitions among lenders to increase as regulators prepare new rules that will boost the amount of cash that they need to set aside.
Capital levels in the industry are too weak to support the government’s target of reaching gross domestic product growth of at least 8 percent a year, Bank of Ghana Governor Abdul Nashiru Issahaku said by phone on Friday. The bank will publish recommendations of a committee working on a review of minimum capital requirements by the end of the year so that implementation can start in 2017, he said.
“Consolidation will only be an outcome of the upcoming review,” Issahaku said. “If you want to be in business then you must consider consolidation. If you want economic growth to hit eight percent, then you need a very strong private environment. Our banks need to mobilize businesses and strengthen the real sector for economic growth.”
The Ghanaian economy expanded 3.9 percent in 2015, the slowest pace in 15 years, according to International Monetary Fund data. The Finance Ministry said in July growth will probably accelerate to between 4.1 percent and 4.3 percent this year as new oil projects start contributing to output. Ghana has 32 banks.
Banks’ capital adequacy ratio dropped to 16.7 percent in July from 17.8 percent in December, against a regulatory 10 percent. Non-performing loans worsened to 19.1 percent from 14.7 percent over the period, according to information on the central bank’s website.
The review will consider the ability of Ghanaian lenders to compete for business in other markets in the region, Issahaku said. “Our banks must be able to compete in other countries,” he said.
The central bank is studying different models as part of the review and may consider setting a new minimum reserve requirement for all lenders, while adding to it depending on the type of business, he said.
“The main reason is to get these banks to the place of being able to finance development projects,” Edem Harrison, a research analyst at Accra-based Frontline Capital Advisors Ltd., said by phone. “The growth agenda is looking at the local market being able to finance most projects rather than giving the opportunity and profits away all the time to foreign financiers.”