The Ghanaian financial system is well structured and composed of 27 Banks, 50 Non-Bank Financial Institutions and 126 community and rural Banks under the Apex banking system. The Bank of Ghana which is the central Bank in Ghana has categorized banks based on a licensed system( Annual report, 2007):
· Class I Banking Licence-Universal banking
· Class II license- Universal and off-shore banking
· General Banking- both Universal and Universal and off-shore banking and ARB Apex Bank
The NBFIs is made up of Discount Houses, Leasing Companies, Finance Companies, Mortgage Finance Companies and savings and Loans Companies. The Bank of Ghana which is a central Bank provides regulatory and supervisory functions over all these NBFI's.
The study is limited to 27 Banks in Ghana and how the capital structure impacts on their profitability. The banks were chosen because they are major contributors to the Ghanaian economy since they account for about 70% of financial institutions (Bawumia 2008).
The head office of all the banks is located in the national capital (Accra) with their branches sited across the country. The ownership or shareholders of the banks is composed of Ghanaians investors, foreign investors, the Ghana government or a combination.
Table 3.0 presents the number of banks and branch networks, ownership and activity areas. Ghana Commercial Bank (GCB) and Barclays Bank, Ghana (BBG) has most branches with the new banks yet to expand to major cities and towns. The Apex Bank Limited is a compilation of 126 rural and community banks under one umbrella. Of the total number of banks, only 13 are wholly Ghanaian owned. Interestingly in the Banking industry in Ghana today, all the banks hold a Universal Banking License.
Table 3.0: Banks in Ghana
Name of Bank
Number of Branches
Ownership
Current Banking Licence
Barclays Bank of Ghana Ltd
120
Non- Ghanaian
Universal
Merchant Bank (Ghana) Ltd
16
Ghanaian
Universal
Ecobank Ghana Limited
32
Non- Ghanaian
Universal
Ghana Commercial Bank Ltd
143
Ghanaian
Universal
National Investment Bank Ltd
24
Ghanaian
Universal
Standard Chartered Bank Ghana Ltd
19
Non- Ghanaian
Universal
SG-SSB Bank Limited
36
Non- Ghanaian
Universal
The Trust Bank Limited
17
Ghanaian
Universal
Agricultural Development Bank Ltd
50
Ghanaian
Universal
Bank of Africa
10
Non- Ghanaian
Universal
Prudential Bank Limited
10
Ghanaian
Universal
Fidelity Bank Limited
6
Ghanaian
Universal
Zenith Bank Limited
9
Non- Ghanaian
Universal
Stanbic Bank (Ghana) Limited
10
Non- Ghanaian
Universal
Unibank Ghana Limited
11
Ghanaian
Universal
Access Bank
20
Non- Ghanaian
Universal
HFC Bank Ghana Limited
11
Ghanaian
Universal
First Atlantic Merchant Bank Ltd
4
Ghanaian
Universal
International Commercial Bank Ltd
12
Ghanaian
Universal
Guaranty Trust Bank Limited
5
Non- Ghanaian
Universal
CAL Bank Limited
10
Ghanaian
Universal
United Bank for Africa (Gh) Ltd
16
Non- Ghanaian
Universal
Bank of Baroda Ghana Ltd
1
Non- Ghanaian
Universal
BSIC
1
Non- Ghanaian
Universal
BPI Bank Limited
9
Non- Ghanaian
Universal
Energy Bank Limited
4
Non-Ghanaian
Universal
Apex Bank Limited
126
Ghanaian
Rural Banks
3.6.2 Evolution of Banking in Ghana
This section discusses the post-independence banking system and unfolding issues and events. The dichotomy between ownership and control during the pre-reform era and a liberalized competitive banking that characterized the post-reform banking sector will be the most important focus of discussion in this section.
·The Pre- Reform Financial Sector
The Ghanaian economy concentrated mostly on commercial banking in the post-independence era which was often led by state-owned banks mainly to leverage the developmental aspirations of the Ghana government by making available funds for departments, ministries, prioritized sectors and state-owned enterprises (SOEs). During this period, banks were not positioned to operate on competitive lines but to bridge the imbalance created by the banking system in the colonial era. The financial sector was used by government for savings mobilization and as an avenue for directing capital funds into productive ventures and activities to speed up economic development. The government domineered the post-independence banking era with the interference in control, regulation and ownership of banks, including the bank of Ghana. The Bank of Ghana could not take decisions on fiscal and monetary policy without consulting with the Ministry of Finance since it was denied autonomy (Ziorklui et al., 2001). Due to this, most banks in this era were state owned and few were both government and foreign owned banks.
The Banking Act of 1970was promulgated to increase financial and banking prudence as well as provide a framework for banking. This was done to address the high inflation, low interest rate, high non- performing loans and poor performance of banks. The economic environment at the time which was characterized by low interest rate and high inflation turned to kill public confidence in the banking system thereby forcing people to invest in physical assets and high yielding government bonds and credit Unions.
The banking sector in the early 1980s was afflicted by inefficiency, non-performing assets (toxic assets in today's parlance), bank losses (Leite, 2000) and dominated by Ghanaian banks and few foreign banks. The three biggest commercial banks in terms of assets in Ghana at the time accounted for 55% of total assets with a state bank owning 25% of total assets and 20% of bank deposits (Buchs and Mathisen, 2005). The few banks in the banking sector means there was a lack of competitive market for innovative products, technology and quality service delivery for customers. This meant the right internal processes were not set up to meet customers.
In summary, controlling banking activities forestalled the development of a competitive banking environment of continual product development, modernized technology resulting in poor service, delayed time and loss of investor confidence and reduced product choice.
Post Banking Reform Era
The developments in the post banking reform era can be summarized as being moved from an environment of severe financial distress and dysfunction in the banking sector, illiquidity and insolvency, credit rationing and interest rate controls to a market based regime and strengthening bank supervision to ensure increased profitability and efficiency (Acquah, 2006).
Under the umbrella of the Economic Recovery Programme (ERP), the Financial Sector Adjustment Programme (FINSAP) was embarked upon in order to suppport the banking sector as a pillar of economic development. This was done in two phases. FINSAP 1 phase allocated a provision for the liberalization of the banking sector and transforming or restructuring banks in financial difficulties (Brownbridge et al., 1998). Restructuring of the banking sector was critical since banks had an important role of supporting the economy and interlinking other economic activities and as such the collapse of the banks will have disastrous effects on the economy. FINSAP 2 introduced new dimensions to the entire financial sector by making provisions for privatization of state-owned banks,human capital development, technological improvements and prudent regulation and supervision of the financial sector by Bank of Ghana. The second phase of the reform also introduced prudent banking regulations by revising the 1970 Banking Law and the introduction of 1989 and 2004 Banking Laws which defined minimum capital requirements of banks and other financial sectors to ensure that they had a lot of capital. After the implementation of FINSAP 2, Bank of Ghana continues to implement strong regulations and provide the needed supervision of banks and develop modern payment and settlement system. Bank of Ghana's Payment Systems Development strategy was aimed at improving the delivery of financial services to enhance financial intermediation through the use of technology by developing electronic payment products such as e-money, internet banking, telephone banking, ATM services, transfer of funds at Point of Sale and SMS banking. The introduction of 'e-zwich' to the market was done to provide a common platform to interlink all the banking institutions with a biometric smartcard (Acquah, 2009). It has been noted that the use of ICT by banks in the provision of financial services has yielded positive results by improving their service delivery and financial performance.
3.6.3 Bank of Ghana: Legal and Regulatory Framework
The Bank of Ghana is the central bank in Ghana and has been mandated to have overall supervisory and regulatory authority in all matters relating to banking and non-banking financial business with the purpose to achieve a sound, efficient banking system in the interest of depositors and other customers of these institutions and the economy as a whole. To enhance the legal and regulatory framework, the Bank of Ghana supervisory functions are designed to be consistent with the Basel Core Principles for Effective Banking Supervision. The regulatory and legal frameworks within which banks, non-banks financial institutions as well as forex bureau operate in Ghana are the following:
· Bank of Ghana Act 2002, Act 612
· The Banking (Amendment) Act 2007 (Act 738)
· Non-Bank Financial Institutions Law 1993, PNDC Law 328
· Companies Code Act 179, 1963
· Bank of Ghana Notices ∕ Directives ∕ Circulars ∕ Regulations
The Bank of Ghana is therefore charged with the responsibility of ensuring that the financial system is stable to ensure that it serves as facilitator for wealth creation, economic growth and development. The laws governing banking operations have provisions regarding licensing, withdrawal of license, and arrangement for examining and monitoring banks, powers and duties as well as protection of the supervisor.
