High Non-Performing Loans (NPLs) and capitalisation issues for the banks, and low level of penetration and cedi depreciation among other things for the insurance industry, have resulted in negative growth for the two sectors in recent times.
Latest figures from the Ghana Statistical Service (GSS) on the economy’s performance for the first quarter of 2018 show that growth for the two sectors, which are jointly assessed, dipped from 6.4 percent in quarter one of 2017 to -7.9 percent – the worst in three years.
It is even worse when the erratic but downward growth is compared on a quarter on quarter basis. In the first quarter of 2017 the two sectors grew by -16.9 percent – but jumped to 17.2 percent in the next quarter.
Then, it plummeted to -4.6 percent in the third quarter, but again climbed to 9.6 percent in the last quarter of 2017.
The year 2018 didn’t start well for the two sectors, as growth has once again hurtled downwards – to -24.8 percent.
The pair’s contribution to GDP dropped from 9.4 percent in 2016 to 8.8 percent in 2017.
In the financial sector, the main hurdle has been the high levels of NPLs.
The Bank of Ghana’s Monetary Policy Committee stated in May that the quality of loan portfolio remains an issue of great concern to the industry.
“The Non-Performing Loans (NPLs) ratio increased to 23.4 percent in April 2018 from 21.6 percent in December 2017. Adjusting for loan loss provision, the NPLs ratio increased to 12.3 percent from 10.1 percent in December 2017,” the statement said.
Another pressing situation in the sector is the minimum capital requirement for banks. Banks are expected to raise a minimum capital to the tune of GH₵400 million by end of 2018, a situation that some local banks, especially, have expressed deep reservations about, as they argue the amount is too high for them to raise.
As a result, most banks are unable to invest in ventures that will expand their growth to reflect on the economy, as funds are being stored to meet the requirement.
Corporate governance issues also cannot be left out of the financial sector, as there are arguments that a lack of corporate governance structures led to the collapse of UT and Capital banks in August 2016.
This resulted in the BoG introducing reforms in corporate governance for the sector. The new reforms, dubbed ‘The Banking Business — Corporate Governance Directives 2018’, seek to vividly define the roles of each member of a board, their tenure and age-limit, and board structure among others.
Notable among the reforms is capping the tenure of a regulated financial institutions’ Managing Director/CEO at a maximum of 12 years, split into three terms not exceeding four years per term.
In the insurance industry, a report by the University of Ghana Business School (UGBS) has cited low penetration of insurance products and services, low use of technology, adverse selection, false claims, late payments of claims, depreciation of the cedi, price under-cutting, low profitability, low capitalisation, poor risk management and weak governance as the main challenges blighting prospects in the sector.
The report recommends that parliament passes the new Insurance bill into an Act, which would provide full legal backing for reform programmes the National Insurance Commission is currently undertaking.