Ghana needs a smaller number of banks which are efficiently run. Thus, the Bank of Ghana's decision to slap a GHC400 million minimum capital requirement on universal banks should be seen as a blessing in disguise.
"Why do we need thousands of financial institutions, a country of about twenty what million?" Madam Aba Amissah Quainoo, Executive Director and Chief Consultant of Mel Consult, quizzed in a no-holds-barred interview before the weekend.
The 53-year-old development economist and sociologist, who has at least 25 years' work and financial services consulting experience in the microfinance sector, believes drastically reducing the number of banks and financial institutions will place Ghana in a better position.
She reasons that if fewer people are working in the financial sector and churning out efficiency, this will translate into benefits for productive sectors of the economy and in turn improve employment.
Therefore, it will be prudent for banks with least financial muscle to consider mergers. Otherwise, the Bank of Ghana (BoG) should boldly rid the system of weak banks, she recommended.
A week ago today, the Bank of Ghana (BoG) announced "a new minimum capital requirement, as part of a holistic financial sector reform plan to further develop, strengthen, and modernize the financial sector to support the government's economic vision and transformational agenda."
In the central bank's statement, it indicated that "Looking ahead, banks would require a more sophisticated and robust capital framework, adequate to transform the banking sector and consistent with the growing risks, levels of sophistication and exposure banks are currently facing.
"In line with the above, and in accordance with Section 28 (1) of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930), the Bank of Ghana announces for the information of Banks and the general public that it has revised upward the minimum paid up capital for existing banks and new entrants from GH¢120,000,000.00(One Hundred and Twenty Million Ghana Cedis) to a new level of GH¢400,000,000.00 (Four Hundred Million Ghana Cedis) effective Monday, September 11, 2017... "
A few days after, Business Day's reporters sat across Madam Aba Amissah Quainoo in her art-filled, modest office overlooking a forest of plants in a neighbouring compound. The interview was meant to give an insight into the package she has for patrons of the upcoming Business Women's Summit 2017 to be organised next week by the Grace Amey-Obeng Foundation International (GAOFI) and China Europe International Business School (CEIBS).
She gave the indication that she would be blunt when she presents of "The value of business development for growth" and demonstrated her forthrightness throughout the interview.
Madam Amissah Quainoo, who has worked in the microfinance sector still engages microfinance industry players through regular capacity development activities, did not hold back from brutally declaring her stance on goings-on in the sector.
In the ensuing paragraphs, we reproduce part of the conversation around the BoG's action on minimum capital requirement for universal banks. Please, read on.
Business Day (BD): There are some challenges in the financial sector, particularly the microfinance sector. Since you have been working with microfinance institutions, are you able to tell what the problem is? Is it still the case of quality management?
Aba Amissah Quainoo (AAQ): You see, over the years I had friends and family people who say why don't you set up a microfinance institution with all your experience and I keep telling them I'm happy to collaborate with them. And I have no regrets for not setting up a microfinance institution because if you look at the regulatory environment it keeps changing; one minute your capitalization is hundred thousand, the next it's one million.
Now the universal commercial banks have to come up with four hundred million Ghana Cedis. Why should I give myself those headaches? Besides we have too many financial institutions in Ghana so I think that the Bank of Ghana and the Ministry of Finance's policy direction is the right one and we should have done this more than fifteen years ago. We shouldn't have even started the process that opened the flood gates for this.
I worked with an Australian consultant and he says in Australia they have only four banks... FOUR... a bigger economy than Ghana's.
BD: What you are saying is something that will people will read and get angry and come at you.
AAQ: I'm sorry! It is the truth and I'm saying it. And apart from that if the central bank is going that way there must be some truth in what I'm saying. Why do we need thousands of financial institutions, a country of about twenty what million? You even have less than that number of customers because children, the aged are part (of the population). This includes all the others who are not using the services of banks. Why do we need that many?
BD: Isn't it because as a country we now depend on the services sector, a critical part of which are the banks, to drive us and we have forgotten about the manufacturing sector? So, everybody gets up and says I'm setting up a financial institution to raise funds for someone to do something.
AAQ: I will not speak to their intentions for setting up financial institutions. I started my career as a practitioner in the financial sector. I have been part of the sector for twenty-five plus years and my conclusion is having many financial institutions is not the solution; they are undercapitalized, lots of Non-Performing Loans. Where are we going with that?
BD: I have seen the last list published by the Bank of Ghana as at May, 2017. Microfinance institutions that are in good standing come to about two hundred and fifty. Are you saying that if we have fewer of them the better it will be?
AAQ: Yes, Yes!
BD: So, it is prudent to raise the capitalization to make it difficult for people in the sector?
AAQ: It is not only making it difficult but making sure that the existing ones have enough buffer to prevent their collapse. Many are struggling with it and unfortunately we have the mentality of non-partnerships; so, you are struggling in your corner to raise the whatever, maybe two or three persons can come together and could have four million Cedis.
BD: You think some of the banks, even before the Bank of Ghana comes after them, should consider merging?
Ans: They should consider merging. Seriously they should. Why go borrowing money to capitalize? How are going to pay off that loan?