What is next for the banking industry

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    Banks are financial intermediaries that receive deposits from surplus spending units and channel these in a form of loans to finance deficit spending in an economy.

    The banking activities started in the then Gold Coast during the colonial era with the goal of providing financial services to the British enterprises and the colonial administration. However, in 1896, the Bank of the British West Africa became Standard Chartered Bank Ghana with its first branch in Accra. What is the future of Ghana banking industry? What can we expect from banks in the future?

    The history of growth of Ghana’s Banking Industry;

    Preview to the Future of banking sector

    The Central Bank of Ghana traces its roots to the Bank of the Gold Coast (BGC), where it was nurtured. It may be recalled that way back in 1947 some leading politicians had called for the establishment of a national bank with central bank functions to act as banker to government and to cater for the indigenous sector of the economy.

    Proposals of the advocates for a central bank were accepted and in early 1955 another Select Committee was set up by the Government to take a new look at the Trevor Report which led to the establishment of Bank of Ghana in 1957 to take control over the management of the country’s currency. Additionally, many public banks and Development Financial Institutions like National Investment Bank, Agricultural Development Bank, Bank for Housing and Construction had also been set up by 1974, to enhance the financial sector by providing services the commercial bank ignored.

    The Ghanaian economy in the period 1976-83 experienced severe crises, in addition to poor economic growth and severe balance of payments problems. In 1983 an economic recovery programme was initiated, which sought to restructure the economy and reverse the trends of economic decay.

    The sharp devaluations of the domestic currency (under the ERP) during 1983-86 made many foreign loans administered by the banks unserviceable. The situation was even more serious for the state-owned banks.

    The effect of these problems was to erode all the norms for capital adequacy and prudential lending. This prompted the government to introduce the Financial Sector Adjustment Programme in 1987. This Programme was carried out in three phases across time, namely FINSAP-1 which covered the period 1988–1991; FINSAP-2 for the period 1992–1995; and FINSAP-3 which started in 1995, and it is an ongoing process.

    The first two periods witnessed radical change in direction of economic policy in Ghana. Furthermore, the introduction of Banking Act in 2004 which led to the elimination of secondary reserves and adjustments in the minimum capital requirement was later replaced with The Banks and Specialized Deposit-Taking Institutions Act 2016. The minimum capital was initially increased to GHS60 million in 2007 and it was further increased to GHS 100 million in 2013. There has been another increased to GHS400 million in 2017. The surge in the minimum capital requirement has in different stages led to mergers and acquisitions of some banks. Currently, there are 23 universal banks operating in the country with about 83% foreign-owned and 13% Ghanaian-own banks in the country. It is however vital to know that the level of competition and increasing digitization in the banking industry has seen some appreciable level of improvement in service delivery and efficiency across the various banks in the country.

    Furthermore, the competition has also led to technological improvements with the introduction of automated teller machines (ATMs), Payment card like Visa and Master cards, e-banking etc. The Bank of Ghana has also introduced a number of reforms such as the Universal QR code payment solution to expand the services in the payments system with the aim of achieving universal access to financial services.

    Various reforms and policy initiatives in the Ghanaian banking industry aimed at improving efficiency have been able to expand their customer base, provide additional services, and ensure that customers are able to handle a number of banking tasks over the internet in the comfort of their homes or offices. These rapid changes that the banking industry in Ghana has experienced are indicative of the future of banking in Ghana. We can expect further rapid technological changes that would revolutionize customer experience regarding banking. The future of banking technology will indeed be beyond expectations.

    Digitization in Ghana’s Banking Sector

    Digitalization in banking is not just hype about the next big thing in the market. It is a fundamental part of every bank’s agenda as a way to overcome outdated approaches and mismanaged client relationships by making banking services available online. Banks in Ghana are actively pushing digital approach in its daily activities. Mobile Wallet apps, Universal Quick Response (QR) Code, E-banking, Point of Sales Terminals and Banking cards are some of the online means of banking in Ghana.

     

    Banking Industry Analysis

    A banking industry analysis provides some keen insights into the working and growth of banking sector in Ghana. The following are some of the factors involved in the industry analysis.

    Robust Economy: With liberalization in the banking sector, measures were introduced from the late 1980s. Interest rates and credit allocations by banks were made available to a wider range of financial services and introduced greater competition between banks. Many multinationals have their operations in Ghana. A growing economy would require good banking services and would automatically contribute to the positive future of banking industry.

     

    Population: The increase in working population has meant that more individuals have additional disposable income, resulting in the need for banking services. In Ghana, the financial systems are predominantly bank-based, which channels funds in a form of deposits to deficit units in a form of loans for productive purposes. According to the Ghana Statistical Service, 67.7% of the working age populations are in employment which confirms that more individuals having additional disposable income to save.

    Digitization and Operational Efficiency: Digitization has drastically enhanced the operational efficiency of the banking sector in Ghana. Individuals are able to open and operate bank accounts much more easily and this has led to the growth of the sector as well as lowered operating costs and increased the profitability of the banks.

     

    Recent Developments in Ghana’s Banking Sector

    Digitization and innovation is rapidly changing the face of banking in Ghana. Perhaps, it can be said that in recent years the whole concept of banking has undergone changes and it is not yet over. These are some recent developments in Ghana’s banking industry:

    Universal Quick Response (QR) Code: The Vice President of Ghana has launched universal QR code which will help customers to make payments to merchants from multiple funding sources like mobile wallets, cards or bank accounts. Both the smart and non-smart phones users can also make payment through this QR codes.

    Electronic Banking: Almost all the banks in Ghana have developed applications to provide diverse banking services. E-banking has brought about a revolution in the functioning of banks in Ghana as it offers major opportunities to banks and their customers.  Progress in the adoption of electronic banking in Ghana has been made.

    Automatic Teller Machines and Bank Cards:  This is perhaps the most widely used aspect of digital banking in Ghana. Today however, ATMs allow people to withdraw cash at any time of the day, while Debit cards also allow an individual to pay their bills, and even transfer funds between accounts. It allows the cardholder to have real-time online access to funds and information in his/her bank account.

     

    The Future of Banking in Ghana

    Banking in Ghana is at the crossroads now. Digitization has been the order of the day. Management of banks needs to adopt a holistic approach to digitization. It is not just a customer relation tool, neither is it just something that speeds up a banking process. It is changing the entire concept of banking. Product innovation and development according to the needs of individual customers is the current buzzword. The Ghanaian banking sector will continue to grow, and digitization will continue. The future of banking technology is digital banking.

    What can we expect?

    When the digitization in banking industry becomes mature in Ghana, we can imagine something like what we experience with the World Wide Web today. Commercial banks will lose their individual identity because to the customer they will all be interconnected and customers will access all banking services over the internet, in the comfort of their homes and offices in Ghana. The future of Ghana’s banking sector is bright because we have seen them take on digitization and improve their customer services. Recent developments in the banking sector give us confidence in the growth of banking industry in Ghana.

    Authors;

    Edmund Obeng Amaning is a researcher/consultant. Contact: [email protected]

    Cell: +233 54 347 5499

    Justice Ohemeng-Boakye is a banker with a strong knowledge in clients and E-banking services. He is a researcher and holds a Master’s degree in Economics. Contact: [email protected]

    Cell: +233 24 519 2745

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