Key players in the banking industry and some economists are worried with the large number of commercial banks licensed and operating in the country.

Some bankers recently, after the Purchase and Assumption of two commercial banks, UT Bank and Capital Bank Ltd by GCB Bank, the Managing Director of HFC Bnak, Robert Le Hunte called on the regulator of the industry, Bank of Ghana, to reduce the size of the commercial banks to a smaller to ensure effective and efficient operation of the banks as well as monitoring.

A number of other stakeholders also added their voice to call on the central bank.

Also, from a different dimension but on the same line call of reducing the number of banks to a smaller number, the Head of the Economics Department at the University of Ghana, Prof. Peter Quartey, has said that the increasing number of banks in the country is partly responsible for the soaring Non-Performing Loans (NPLs) ratio in the sector.

He is therefore suggesting that, ideally, there should be only about six big or commercial banks in the country.

He explained that, because all the 36 banks in the country are chasing the same customers, most of them have relaxed their requirements for clients in order to attract them, thereby, affecting NPLs.

“We have too many banks in the system, considering the size of the economy. All these banks are competing for the same clientele. So sometimes, where they need to apply some due diligence, they tend to be a bit flexible. Because of competition, you need to attract customers, you need to attract deposits, so in their lending they tend to be a bit lax and that has affected the NPLs,” he said in an interview.

The latest Bank of Ghana Banking Industry report shows a deterioration in the loan portfolios of banks between June 2016 and June 2017, although the rate of growth (year-on-year) in the industry’s NPLs slowed down from 82.5 percent in June 2016 to 30.7 percent in June 2017.

By the end of June 2017, the stock of NPLs in the banking industry had risen to GH¢7.96 billion from GH¢6.09 billion in June 2016.

This translated into an NPL ratio of 21.2 percent in June 2017 compared with 18.8 percent in June 2016. When adjusted for the fully provisioned loan loss category, the NPL ratio shows an increase from 10.9 percent in June 2016 to 11.3 percent in June 2017.

According to Prof. Quartey, the country’s legal system has a big role to play in helping address the issue, considering a lot of people have taken undue advantage of the lack of enforcement of the laws and have decided not to repay their loans.

“I can also point to the gradual increase in the number of people who borrow and default with impunity. They know they can get away with it because our legal systems don’t work efficiently. So, they borrow and default with impunity,” he noted.

Prof. Quartey further waded into the ongoing debate about how many banks should be allowed to operate in an economy the size of Ghana’s, with a GDP of about GH¢200 billion, saying, just about six large banks are enough to serve the needs of the country.

“If you take some of the developed countries like Canada and the UK, they don’t have so many banks. Look at the size of our GDP and look at the number of banks; over 30 banks are just too much. And the irony is that they are concentrated and mostly found in the capital.

They are just within Accra, Cape Coast, Kumasi and some other places. We could have five or six banks which could have branches all over the country. That, for me, will be better than having so many banks spread within few regions of the country. So, I think, [at most], we should have five or six banks with very large branch networks across the country,” he said.

Banks wrote off GH¢609 million as bad debts in June 2017, compared with GHc541.8 million provision made in June 2016, according to the Bank of Ghana’s (BoG) Financial Stability report for July 2017.

The year-on-year growth was 12.4 percent in June 2017 as against 20.6 percent in June 2016.

The provision made by the banks in their books included loan losses, depreciation and others.

The non-performing loans (NPLs) however still remain high on the books of the banks with almost half of the banks recording NPLs of more than 20 percent.

According to the BoG, the key risk to the banking industry is the high stock of impaired assets to total loans as measured by the non-performing loans (NPLs) ratio. Two banks-UT Bank and Capital Bank were forcibly taken over by GCB, a move directed by BoG because of their high impairments, which the regulator described had reached alarming state.

The report added that the industry’s NPL ratio increased between June 2016 and June 2017 driven by the energy related and other large non-oil related exposures.

Also, the Asset Quality Review exercise conducted in 2016 revealed some weaknesses in banks’ credit classification practices, leading to the downgrading of some already-existing credit facilities.

The report added that the industry’s asset quality was projected to improve as banks put in place measures to strengthen credit risk management processes and improve loan recovery efforts.

The report said the issuance of the 10-year energy sector bond would help offset part of the energy sector debts, particularly debts owed by Bulk Oil Distribution Companies (BDCs) and reduce the stock of non-performing loans in the industry.

Meanwhile, overall demand for loans by enterprises picked up in the June 2017 survey round compared with the last survey conducted in April 2017.

The increase in the overall demand for loans by enterprises was on theback of net increases in demand for both long-term and short-term loans, as well as an increase in credit demand by large enterprises. Demand for loans by small and medium enterprises also increased although not by the same margin as demand for loans by large enterprises.

Similarly, the June 2017 survey responses indicated that demand for loans for house purchases went up marginally. Demand for consumer credit on the other hand, declined during the June 2017 survey round.

In a related development, the private sector remained the largest recipient of banks’ credit (both domestic and foreign) although its share of banks’ credit declined marginally from 87.4 percent in June 2016 to 86.9 percent in June 2017.

Asa result, the share of banks’ credit to the public sector increased from 12.6 percent to 13.1 percent over the same period. Credit to private enterprises which formed the largest proportion of credit to the private sector accounted for 71.2 percent of credit extension in June 2017, slightly up from 70.0 percent in June 2016. Households accounted for 14.3 percent of total banks’ credit in June 2017, compared with a share of 14.9 percent a year before.

The Commerce & Finance, Services, and Electricity, Gas & Water sectors remained the three largest in terms of outstanding credit balances in June 2017, with a combined share of total banking sector credit of 56.3 percent.

Outstanding credit balances allocated to the Commerce & Finance sector (the largest sector) was 25.7 percent by the end of the first half of 2017.

The Mining & Quarrying and the Agriculture, Fishing &Forestry sectors were allocated the least shares of credit of 2.4 percent and 3.9 percent respectively. The share of credit to both sectors declined marginally over the one year period

Source: Adnan Adams Mohammed