Financial Sector Overview
Recent economic developments
After slippages in 2016, the Ghanaian economy has recorded growth averaging 3.5 percent in 2017. However, the country's external debt has reached significant levels, rising from USD 29.2 billion in 2016 to USD 31.7 billion in 2017, equivalent to 68.1 percent of GDP. Inflation remains high (above 10 percent) but has eased from 12 percent to 11 percent on average in 2017. The central bank's monetary policy stands at 21 percent, a rate that represents a major challenge for the banking sector. Following the 2007 currency redenomination by the Bank of Ghana, the cedi was almost at parity with the US dollar. Since then, the cedi has depreciated to USD 1 / Gh ¢4.5. Thanks to improved global oil prices, external reserves have increased from USD 4.9 billion in 2016 to USD 5.9 billion in 2017, representing 3.4 months of imports. Ghana fairs reasonably well in terms of human development, with an HDI of 0.579 and a medium Gini Coefficient estimated at 42.8 percent.
Like other African countries, Ghana's financial system is dominated by banks. The Bank of Ghana (BoG) is the central bank in charge of banking supervision and the development of financial inclusion policy. Its prerogatives also extend to the microfinance sector. According to available data, Ghana's accredited banks increased from 28 in 2014 to 33 in 2016 while agencies increased from 967 in 2014 to 1.341 in 2016.
Microfinance institutions increased from 503 in 2014 to 564 in 2016. The number of active mobile money agents also increased from 20,722 in 2014 to 107,415, demonstrating the value of financial inclusion in terms of job creation. The number of ATMs also increased from 923 in 2014 to 1,928 in 2016. In contrast, non-bank financial institutions improved only slightly, from 60 in 2014 to 64 in 2016.
There are 55 insurance companies, 26 in life insurance and 29 in non-life insurance (fire, accident and other risks). Four (4) reinsurers also operate in Ghana. The National Insurance Commission (NIC) regulates and supervises insurance activities in the country.
The National Pension Regulatory Authority (NPRA) is the statutory agency of the government responsible for the regulation and policy development of pension administration.
The Ghana Stock Exchange (GSE), the national stock market, includes the official compartment and Small and Medium Enterprises (SME). The Securities and Exchange Commission (SEC) is the regulator of the GSE.
The Ghanaian banking sector has been experiencing turmoil for a number of years due in large part to problems of bank governance and weaknesses in supervision. A comprehensive asset quality review conducted in 2016 by the central bank showed a serious deterioration in the quality of assets in the banking sector. The results also pointed to substantial gaps in risk coverage (provisions) for a group of banks, resulting in a need for recapitalization estimated at around 1.6 percent of GDP. The presence of toxic assets in banks' books has contributed to slowing credit to the private sector and increasing the cost of credit. Access to credit, whose outstanding amounts are estimated at 15 percent of GDP, continues to be limited to levels below the average of comparable countries. The growth of the credit portfolio slowed considerably, from 29.1 percent in 2015 to 12.4 percent in 2016. The extension of the liquidity injection into the banking system to support the banks in difficulty decided in 2016, combined the reluctance of banks to grant new loans, aggravated the excess liquidity in the economy and increased de facto inflationary risks.
In response to the fragility of the banking sector, the Central Bank in September 2017 tripled the minimum capital of banks from 120 to 400 million cedis equivalent to USD 91 million. While the deadline for compliance was 31 December 2018, 5 of the 35 banks operating in Ghana had complied with this new regulatory provision by the end of 2017. Some banks could use the stock market to raise the funds needed for this recapitalization. Despite these preventive measures, two banking groups had their licenses revoked when a third bank was placed under provisional administration.
At the end of 2017, banks' total assets reached 93.2 billion GH ¢, an annual growth of 12.8 percent. This asset growth is mainly financed by deposits, which increased by 10.6 percent. The Ghana Reference Rate (GRR), which serves as a "base rate" in setting interest rates on bank loans, stood at 16.82 percent in April 2018.
The Central Bank is coordinating the development of an electronic payment infrastructure to improve the interoperability of payment infrastructures and securities while limiting the risks associated with payment, clearing and settlement systems. Further measures to strengthen the prudential and regulatory framework, reduce ongoing liquidity assistance and support the stability of the microfinance sector will help build a stronger financial sector well positioned to support growth and promote financial inclusion.
Mobile money has proven to be a powerful driver of financial inclusion in Ghana and rural people's access to financial services has doubled since 2010. In most cases it is used to pay bills, buy property and services, make direct payments for loans and savings contributions, purchase telephone and data communication time, send and receive money. For the moment, Ghana has 19 million mobile subscribers, equivalent to 67 percent of the population, above the regional average of 44 percent. The vast majority (60 percent) of mobile money users are city dwellers.
In 2016, the volume of mobile money transactions amounted to $ 18 billion or nearly 550 million transactions. The sector has been governed since 2008 by a guide of good conduct published by the Central Bank of Ghana. This document also lays down the rules of good operator practice and mobile banking consumer protection. The regulator has also allowed mobile operators to offer financial products in their mobile banking offerings. According to recent statistics available, only 7 percent of Ghanaians use mobile savings, while more than 80 percent of the population uses savings schemes outside the banking system. A situation that represents a significant growth reservoir for banks and operators, especially as banks in Ghana carry out their mobile banking in collaboration with mobile money service providers.
According to estimates by Ghanaian operators, the market could still accommodate 3.5 million mobile money accounts by 2020, targeting notably farmers. Successful integration of this business sector is expected to generate $ 13 million in financial transactions and 1.1 million transactions for government coffers in 2020. The segment is likely to boost the access of the Ghanaians to their banking and access. financial services.
In Ghana, the Central Bank has the legal mandate and overall responsibility to regulate the microfinance industry, with support from the Microfinance and Small Loans Center (MASLOC) and the Ghana Microfinance Institutions Network (GHAMFIN). According to the Network of Microfinance Institutions of Ghana (GHAMFIN), only 10 percent of microfinance companies comply with the rules in force and a large part could disappear if the regulator does not extend the deadline for compliance with the provisions relating to microfinance. increase in the minimum capital required. All microfinance companies are expected to raise their capital from 500 000 GH ¢ (108 000 USD) to 2 million GH ¢ (2 432 000) before June 2018. The SME sector will be the most affected in case of closure of microfinance institutions: most SMEs use microfinance companies for financing and deposits.
Insurance contributes about 1.4 percent of Ghana's GDP in 2013, and the sector accounted for about 5 percent of the financial sector's assets in 2016. The insurance penetration rate in Ghana remains below 2 percent of the population. shows the growth potential of the sector. Bureaucracy, delays in settling claims, and lack of education about insurance policies are eroding public confidence in marketed products and the sector. Collaborative efforts between business and the public are needed to improve the transparency and efficiency of the sector.
In 2015, the regulator raised the minimum capital requirement to 15 million GH ¢. The regulator is considering a further increase before the end of 2018.
The Ghana Stock Exchange (GSE) was established on November 26, 1990 and is governed by the laws of the Securities Industry Law of 1993. The Securities and Exchange Commission (SEC) establishes the rules of operation of the market. There are 27 listed companies on the GSE, 10 brokerage firms, 5 mutual funds and 1 open-ended company. The derivatives market remains largely underdeveloped and does not include interest rate or foreign exchange derivatives.
Bank lending and personal savings continue to be the main sources of financing for Ghanaian companies. Macroeconomic instability affects both companies and investors. Government bonds on the financial market at high interest rates make the stock market less attractive. A 2016 study found that market inefficiencies, lack of clear government policy direction and inadequate regulation also contribute to illiquidity. To deal with the problem, the stock market authorities recently introduced the Ghana Alternative Market (GAX) for SMEs and the Ghana Fixed Income Market (GFIM).
Financial incentives for listed companies, greater equity among market players and the implementation of appropriate policies and regulations are likely to favor the listing of state-owned enterprises, local private enterprises and foreign companies. of the GSE.
The Ghana Pension Act 2008 establishes a three-tier pension plan consisting of (i) a mandatory basic national social security scheme, (ii) a fully funded and private mandatory occupational pension scheme and (iii) a pension fund. pension plan and a fully funded and privately managed personal pension scheme. The investment guidelines for pension funds are set by the sector regulator, the National Pension Regulatory Authority (NPRA).
The regulatory changes initiated in 2009 opened the pension market by including the previously excluded informal sector. It covers between 80 and 90 percent of the working population in Ghana. Under the new plans, the growth of the potential retirement market offers insurance companies, banks and other players in the financial services sector the opportunity to operate as trustees, fund managers or custodians. The management of the pension plan has been decentralized to include private institutions. Total assets held by private pension funds in Ghana reached $ 1.1 billion at the end of 2015, according to the NPRA, accounting for 3.3 percent of GDP. The latest OECD data show that between 2014 and 2015, private equity investments in Ghana increased by 72.5 percent, compared to 3.3 percent for Kenya over the same period. Between 2012 and 2015, the variation was 480 percent.
These important reforms are aimed primarily at mobilizing domestic savings. The regulation allows an employee to devote up to 35 percent of his income to retirement savings, tax-free. This tax incentive is intended to encourage more workers to join the pension plan. The government hopes that a higher rate of domestic savings will provide a source of long-term developmental capital and reduce dependency on oil revenues.