Banks continue on growth trajectory despite slowdown in economy

Ghana Nilla Selormey, CEO of UMB	Ghana Stephen Kpordzih, Managing Director of the Agricultural Development Bank	Ghana uniBank CEO Felix Nyarko-Pong

While the rate of expansion of the Ghanaian economy may have slowed to 5.5% last year (down from 7.9% in 2012), it seems that the momentum that has gathered in the banking sector in recent years has not been impeded. Following an impressive year of growth in 2012, total assets of the banking sector grew by 32.8 percent in 2013 to GH¢36.17 billion ($11.9 billion).

International banks have a large presence in Ghana’s financial industry, but local banks like United Merchant Bank (UMB), uniBank and the Agricultural Development Bank continue to expand and improve their services and hope that they – the indigenous lenders – can one day gain the dominant position in the market.

“That is the ideal situation. If you go to England, the biggest banks are the British banks. If you go to Italy, the biggest banks are the Italian banks. Why should it be different for Africa? You should be able to come to Ghana and find that the biggest banks are Ghanaian banks,” says Nilla Selormey, CEO of UMB. Ms Selormey is confident that – with the right resources, the right policies and the right infrastructure in place – it is only a matter of time until the Ghanaian banks dominate the local market.

One of the main reasons for the sharp deceleration of GDP growth last year was the fall in commodity prices, to which Ghana, like many of its African neighbours, is highly susceptible. The country aims to diversify its economy and become more industrious, less reliant on raw commodities, and more dependent on manufacturing and value-adding industries.

“The need to diversify has long been spoken of, and we really felt that last year when cocoa and minerals recorded nearly $1.3 billion in shortfall, which resulted in the depreciation of the Ghanaian Cedi,” says CEO of uniBank Felix Nyarko-Pong.

It is a well-established fact that the key to a healthy, sustainable and diversified economy is a thriving SME sector (for example in the UK, SMEs accounted for 99.9 percent of all private sector businesses and 59.3 percent of private sector employment in 2013). As the main providers of capital, the Ghanaian banks play a major role in the diversification process, mainly by lending to the country’s growing pool of SMEs.

“The producers are the SMEs and they are a vital component of our economy. UMB has a strong focus and commitment to the SME sector. Our Business Banking department is dedicated to serving the needs of SMEs,” says Ms Selormey. “The SME business context is very different from that of the corporate conglomerate. Understanding the differences and applying measures that uniquely address the concerns of the SME segment will help to drive domestic production.”

“As well as helping Ghanaians to grow their businesses, local banks with local expertise like ADB, uniBank and UMB provide excellent services to foreign investors keen to explore the growing opportunities in Ghana”

Like UMB, uniBank is also committed to lending to the flourishing SME sector. “There is no country that develops without developing its SME market. That is what becomes the engine for growth of all the other sectors. At least 90 percent of our resources are committed to that area,” explains the uniBank CEO.

The government has placed a lot of emphasis on the development of agriculture, which employs some 60 percent of the population, as a chief engine of economic growth. However, according to Stephen Kpordzih, Managing Director of the Agricultural Development Bank (ADB): “Agriculture in Ghana is very fragmented — on a subsistence basis largely rain-fed, lack of technology, lack of access to appropriate finance structure, high cost of financing, and even access to farmland. These are the problems.”

The ADB is supporting the development of the Ghanaian agriculture sector, by providing capital to farmers and agro-SMEs. Modernisation and mechanization is key to a thriving agro-industry, and the capital provided by ADB is being used by farmers and agribusinesses to purchase modern equipment and machinery.

“Prior to 2009, the bank had largely operated the same business model since 1965. Even though we were supposed to be an agricultural development bank, there was no dedicated department for agricultural finance,” explains Mr Kpordzih.

“We created a dedicated agricultural financing unit and established an asset finance unit. We did this because one of the challenges for the agricultural sector is lack of access to machinery, plant and equipment so there was a need to provide a financing lease arrangement.”

As well as helping Ghanaians to grow their businesses, local banks with local expertise like ADB, uniBank and UMB provide excellent services to foreign investors keen to explore the growing opportunities in Ghana, which, thanks to its political and economic stability, has attracted a large portion of the influx of FDI to Sub-Saharan Africa in recent years.

“At uniBank, we have people with international experience and deep, unrivalled local knowledge as well. When you bring these together as we have, you manage to get very good, sound returns in the sector because you offer them best practice and you also understand them,” says Mr Nyarko-Pong.

Ms Selormey of UMB says that a major hindrance for foreign investors in Africa is restrictions on capital inflows and outflows. However in Ghana, she states that the government and the financial industry are supportive of FDI, so policies allow for the free flow of capital.

“There are opportunities in every sector in Ghana,” she adds. “At UMB we combine the expert knowledge of our industry specialists with our significant financial expertise to provide foreign investors with the necessary tools to invest wisely.”