As we all know, the world, at the end of 2019, woke up to a new pandemic, Coronavirus, i.e. COVID-19,which has since spread and affected over 200 countries and territories, as at March 2020.
Our country Ghana was hopeful that the spread of the virus will not affect Ghana and Ghanaians, just asthe country was spared during the Ebola outbreak in 2014/2015 when a single case was never recorded inthe country. However, on March 12, 2020, Ghana recorded its first two COVID-19 cases and thenumbers have since increased to over 12,000 as at June 18, 2020.
COVID-19 has impacted Ghana’s economy and the world at large. Globally, response to the pandemic has been swift as governments and multi-lateral institutions have responded with a mix of fiscal and monetary policies mainly to stimulate economic growth and cut down on economic losses. Notably, there have been cuts in interest rates, provision of stimulus packages by governments and provision of credit facilities by IMF (US$14 billion) and the World Bank (US$50 billion).
As the pandemic cast its shadow on our economy, economic activities have taken a downturn withgrowth projected to be at only 1.5% compared to an earlier outlook of 6.5% for 2020.
The Government of Ghana (GoG) has put in place key measures to curb the impact of COVID-19, throughinitiatives such as the establishment of a Coronavirus Alleviation Programme (CAP), lowering of the cap on Ghana Stabilization Fund (GSF) from the current US$300 million to US$100 million to allow for transfer ofexcess funds to the CAP, adjustment of expenditures on goods and services, and CAPEX downwards byGH¢1.2 billion, among others.
As we all remember, the most famous of all the government’s initiatives was the lockdown directive, with its associated social distancing protocols and the closure of the country’s borders and airports, to curb the spread of the virus.
Certainly, the banking sector was not exempt from the dire impact of COVID-19, with the effects gravely cutting across the financial entities themselves, their processes, shareholders, staff, customers, products and services offerings, and other stakeholders, among others.
Prior to COVID-19, the Ghanaian banking sector was on a fast recovery trajectory from the effects of the banking sector reforms introduced by the Bank of Ghana some two years ago. The 2019 3rdQuarter Monetary Policy Committee (MPC) reported that the banking sector had become well-capitalized(with 23 universal banks), solvent, liquid, efficient and profitable with improved financial soundnessIndicators proving that the reforms have had a positive impact on the performance of banks.
Banks have had to re-strategize and re-prioritize projects with the influx of the COVID-19 pandemic. With business and border closures emanating from government directives to stay at home, production levels have slumped significantly. Most targets and budgets have had to be tweaked to reflect the sharp downturn of the world economy. Obviously, banks can no longer go back to their old ways of operating since the needs andpsyche of customers have changed significantly as a result of COVID-19.
Issues such as channel optimization and the remote offering of banking products and services (i.e. Physical channels – ATM, Branches; Digital Channels – APPs, USSDs, Internet Banking, etc.), as well as cyber security have become topical in the boardrooms of most banks.
Impressively, prior COVID-19, the banks had begun aggressively driving the digital agenda andencouraging customers to jump onto the digital train. The foresight of the banks as well as theimplementation of the use of various digital channels have greatly helped to support businesses duringthese times of COVID-19, as customers had already built confidence in the use of the digital channels.Banks now need to establish new ways of measuring profitability and output/productivity of their staff, withthe introduction of the shift system as a way of observing some COVID-19 protocols.
Obviously, the cost implications of the new order on banks cannot be overemphasized. Customer visits tothe banking halls have reduced and with the introduction of the shift system, banks now have workingspaces that are not being optimized. The procurement of PPEs and other items needed for maintaining staffwellbeing in order to enable the banks operate in these abnormal times have all increased their operatingcosts.
The regulator, in March this year also introduced some raft of measures and interventions to contain theimpact of the COVID-19 on the Ghanaian economy. These include the reduction in thePrimary Reserve Requirement of Banks from 10% to 8% and the reduction in the CapitalConservation Buffer (CCB) from 3% to 1.5%. Provisioning on Loans classified as OLEM has beenreduced to 5% from 10 %. Also, the costs associated with mobile money and other banking transactionshave been reduced and banks have been directed to give moratoriums on loans with the GRR rate alsoreduced by the Central Bank.
In a nutshell, low transactional volumes will result in low profitability, low deposits, and significantly, high Non-Performing Loans (NPLs) and high operating costs are some of the adverse impacts to be envisaged by financial entities as a result of COVID-19. Shareholders may therefore experience low returns on their investments and some may not even receive dividends at the end of this financial year (2020).
Bank staff, on the other hand have been gripped with uncertainties about the future of their jobs and careers, as banks are forced to do business with minimum personnel at post. The paradigm shift has moved from working long hours to working smart and staff now feel pressured to make themselves relevant to justify their inclusion.
Also, in terms of remuneration, as banks record low profits, staff are uncertain as to whether their employers will be able to support the staff cost during COVID-19. Some banks have already cut some perks given to staff and even reduced or amended staff facility packages altogether. There have been hints in the media of some banks planning to cut staff numbers, further increasing the anxiety among financial services personnel.
Bank customers have themselves experienced their own share of the adverse effects of COVID-19, rangingfrom cuts in sales and revenues, reduced or no stock from their overseas suppliers to completelycollapsed businesses such as the air travel value chain (Airports, travel agencies, among others) and the hospitality sectors have been dramatically affected.
Furthermore, as the partial lockdown was implemented in some parts of the country, individuals, businessowners and their employees were hard hit as they complained of no or little income due to the closure of businesses. To some extent, this exposed the lack of savings culture for many people.
Customers’ expectations of their banks have since changed greatly. Customers do not want to be exposedto environments that may increase their risk of contracting the virus, resulting in reduced visits to theirbanks, and implying reduced businesses (investments and savings) for financial services providers.Customers are also anxious about the future of banking and the resilience of their banks in withstandingthe shocks of COVID-19. Banks therefore need to create other effective channels in readiness for theircustomers (in their comfort zones).
COVID-19 – Are there opportunities and lessons?
It is often said, “there is a silver lining in every cloud” … we just have to look for it.
One of the key impacts of the current pandemic is the emphasis on social/physical distancing and contactless payment options. The situation presents financial institutions with the opportunity for digitaltransformation both at the front and back office levels. This, if done effectively could result in efficient servicedelivery, quicker turn-around time and improvement in the overall service experience for bank customers.
Furthermore, there are significant cost savings associated with going digital in the medium to long terms.Cost of renting, building, running brick and mortar branches can be significantly reduced. The recent spate ofinvesting in large and expensive edifices to accommodate employees has resulted in a significant portion ofbank’s balance sheet being in fixed assets. This phenomenon can be curtailed as banks find ways forworkers to work more remotely and digitally. This will ultimately reduce the operating costs of banks aslesser expenses relating to utilities and depreciation are incurred.
- Banks should continue to follow all COVID-19 protocols during this period to increase the confidenceimposed in them by customers while safeguarding the wellbeing of their customers as well.
- Banks should continue to deepen their relationship with clients; proactively staying in touch and understanding their businesses as well as the changes in their operating models while providing the necessary and adequate support during this difficult economic downturn.
- Banks should intentionally and purposefully offer free and effective advisory services to clients suchas recommending e-commerce or online sales to them, and new ways of doing business in theirvarious sectors, etc. through the use of Call and Contact Centers.
- Cash Collaterals can be used to pay off or pay down bank exposures to clients, as a way ofreducing interests payable on facilities.
- With the new normal, banks should deepen their collaboration with the Fintech Organizations toenable them offer more digitized solutions to customers (Open Banking).
- The Central Bank should continue to monitor the industry and offer the requisite support asand when necessary to enable the sector and banks recover well from the shocks of the effects ofthe pandemic. The reduction of the Primary Reserve from 10% to 8% can be maintained for alonger time if possible.
- Banks should continue to encourage the use of and maintain safe and secure e- platforms and also put in place, advanced mechanisms to forestall hacking and cyber risks, which are imminentduring this period. Continuous cyber risk assessment is recommended for banks to be alert andresilient at all times. As some key staff begin to operate from their homes, the issue of confidentiality of customer data readily comes to the fore. Staff must be sensitized to this potential risk as the bank works hard to reinforce mechanisms to avoid shoulder surfing and other cyber security threats.
- Staff members need to well position themselves for the new future by upgrading themselvesand possessing new skill set that will be required in the digital financial space.
- Customers of banks should be open, transparent and honest and not take advantage of this situationand refuse to honor their financial obligations.
- Lastly, individuals and entrepreneurs must develop a savings cultur Saving at least 10-20 percentof one’s income every month will cushion people should the unexpected arise.
Changing customer demands, sophistication and convenience has led to the introduction of alternative channels. In the space of the COVID-19 banks need to consider enhancing their Alternative Banking Channels to provide banking services in remote areas. Currently almost all the banks in Ghana use Unstructured Supplementary Service Data (USSD).
They could consider an enhanced USSD, a new technology that allows cellular telephones to communicate with the mobile network operators and banking systems to provide extended banking products and services. USSD were originally used for prepaid mobile-money financial services but could do more.
Rather than just using these alternative channels for simple prepaid mobile-money payments, these enhanced and seamless SMS alert, Internet banking etc. must be extended to provide broader banking services and they should be offered as compulsory bouquet of services. For instance, Automated Clearing House (ACH) transactions through the internet banking should be enhanced to reflect in real time.
Payment system through digital routes such as internet banking needs to be enhanced to reflect real-time action. Automated Clearing House (ACH) transactions could be enhanced with APIs and internet banking to operate seamlessly and directly to the centralised clearing system and not routed through a standalone internal bank system which at the moment is limited to the banking premise. Such a delay discourages customers from its usage.
In the space of the COVID-19 pandemic customers will want to see the banks serving them with these enhanced and broader alternatives channels to allow them to engage a bit more with the banks in their remote locations. The turnaround time for the processing of customers’ requests through these alternative channels should be enhanced now.
It is time the banking sector accelerate its speed towards integrating alternative banking channels and the use of advanced technology to serve both its internal and external customers. Banks in Ghana may want to look at the operations and exploits of First Direct a telephone and internet based retail bank in the United Kingdom. First Direct has 1.35 million customers who never visit a bank branch or head office but still deposits and access credits and other banking offerings at lower fees and charges and higher interest rates on their savings accounts.
Extending digital and remote banking
Digital banking is part of the broader context for the move to remote and online banking, where extended full-blown banking services are delivered over the internet and at any location. The shift from CORE banking to digital banking has been gradual and remains ongoing, and is constituted by differing degrees of banking service digitization. The joy is that digital banking involves high levels of process automation and web-based services. It also include the adoption and use of Application Programming Interface (API), a computing interface to a software component or a system, which defines how other components or systems can use it.
APIs provides the ability for users to access financial data through desktop, mobile and ATMs services remotely. Ultimately, a digital bank should facilitate all functional levels of banking on all service delivery platforms at any locations. In other words, Digital banking platforms should have all the same functions as a banks head office, branch offices, online service, bank cards, ATM and point of sale machines and allow the customer and bank to interact from all sides remotely.
Since the start of the coronavirus, consumer demand for digital banking has never been greater. Unfortunately, many banks that were delaying digital transformation efforts have been caught flat-footed, without the ability to deliver a digital experience. COVID-19 has become a digital banking ‘reality check’ for both financial institutions and regulators.
Alternative Financial Service (AFS) partnership
The Ghanaian economy is dominated by the informal sector with actors often describes as the black marketoperators, shadow economy, underground economy, “under the table”, “off the books”, and “working for cash”. The informal economy (informal sector or grey economy) is the part of any economy that are mostly neither taxed nor monitored nor banked by any form of regulator or bank.
Although the informal sector makes up a significant portion of the economy, it is sometimes stigmatized as troublesome and unmanageable. The banks in Ghana have therefore mostly stayed away from the sector. It must be emphasised that, the informal sector provides critical economic opportunities for the poor and has been expanding rapidly since the 1960s. Integrating the informal economy into the formal sector is an important policy challenge.
In this COVID-19 space, it has become very clear that this sector is largely underserved. An opportunity has once again been highlighted for the major banks to move into the informal sector with their existing and new technologies and digital applications in collaboration with the Alternative Financial Services operators. This is an area that the Universal banks must rise up to serve.
These Alternative financial service (AFS) are institutions that provide services to these low-income individuals. These service operators often offer financial inclusion services such as Microfinance and Micro Insurance. The banking sector can leverage on its products and services to rope in the large informal sector customers.
The collaborations will allow banks to utilise excess capacities in their enhanced technologies and liquidity muscles to enable AFS widen their traditional services such as payday loans, day workers’ credits, day labourer’s credit, rent-to-own agreements, refund anticipation wages and salary loans, mobile money advance credits and loans, mobile money transfers cash gift vouchers among others with the aim of increasing the revenue lines due to expanded capacity.
There is no gainsaying that the banking sector in Ghana has been fairly proactive in complying with the directives of the Bank of Ghana to invoke their Business Continuity Plans. They have also taken swift actions to meet customers’ demands and expectations in the advent of the COVID-19 Pandemic. COVID-19 has come to push the banking sector to move a bit more beyond incorporating innovative technologies and infrastructure to enhancing working tools to meet customers need in their remote locations.
It is the expectation of the Chartered Institute of Bankers that this article will expose some few learning areas and confidence boosters to all stakeholders to join forces to fight this unfortunate deadly epidemic which has come to change our normal banking operations.