Even though their umbrella sector – services – remains the largest contributor to GDP in the country, holding 56.2 percent of economic activities, the financial and insurance subsectors saw a drop in their contribution to the economy from 9.4 to 8.8 percent, Ghana Statistical Service (GSS) data have shown.
The 0.6 percent drop can rightly be attributed to the distress the financial sector is currently going through, and the low level of insurance penetration in the country.
The two sectors have been among the slow-pace growing sectors of the economy in recent years, as it grew by 0.5 percent in Q4 of 2017 compared to health and social work which grew by 5.2 percent – the highest in the services sector.
With respect to the financial sector, some of the challenges include commercial banks that are reeling under high Non-Performing Loans (NPLs) which have affected growth negatively.
The central bank’s December 2017 banking sector report revealed that asset quality remains a key risk, since the industry’s NPL – as at end of December 2017 – amounted to GH¢8.58billion (GH¢6.2billion in December 2016), which translates into an NPL ratio of 22.7 percent in December 2017 from 17.3 percent in December 2016.
Some analysts have partly blamed the high NPLs on government, owing to the US$2.4bn energy sector debt it owes banks. Government also owes road contractors an estimated GH₵600million debt – of which a huge chunk was money borrowed from banks by the contractors.
On top of these debts, banks are mandated by the central bank to raise a minimum capital of GH₵400million by end of December this year.
It is reported that some six local banks are facing an uphill task to raise the money, with some petitioning the president to step in and extend the December deadline.
The Bank of Ghana has however stated it will not compromise on its resolve to ensure that it restores trust and confidence to the banking sector, despite pleas for leniency by some local banks.
Already two of them, the UT and Capital Banks, collapsed last year and their assets were taken over by GCB bank.
And just last month, March, another indigenous bank – uniBank – was placed under the administration of auditing giants KPMG to steer its affairs and bring it to profitable ways, as the bank’s Capital Adequacy Ratio has entered the negatives.
Another challenge in the banking sector that has been cited for the downfall of the above-mentioned banks, and many others, is weak corporate governance structures. This has prompted the central bank to release new corporate governance guidelines for the sector in an attempt to address such lapses.
Moving on to the insurance industry, penetration is still low in the country, as it is estimated below 3 percent.
The situation has been blamed on the low level of education about insurance, which has not been able to change the perceptions and mindset of the people about their services.
One major reason that has been attributed to the difficulty in changing perceptions and the mindset about the industry is ‘hidden conditions’ in insurance contracts, which are only revealed to clients during claim settlement.
The financial and insurance sectors are very critical to the country’s economy, as they are among the leading employers in the services sector. Hence, prompt action and policies must be rolled out by government to address their challenges, so they can contribute to the economy with their full potential.