Financial sector regulators must collaborate …to bring down interest rates, increase access

Yaw Osafo-Maafo (left)

Senior Minister Yaw Osafo Maafo has called for increased collaboration between the Bank of Ghana (BoG), National Insurance Commission (NIC), National Pensions Regulatory Authority (NPRA), and the Securities and Exchange Commission (SEC) in order to bring down interest rates and increase access to credit.

“It is without doubt that an efficient financial system is one with both vertical and horizontal collaboration among the various financial sectors – banking (including microfinance), insurance, pensions, securities, and alternative asset vehicles such as hedge funds, private equity funds and venture capital funds,” he said.

Mr. Osafo Maafo, who is a former Finance Minister, added that: “Relevant regulators for banking, pensions, insurance and securities must collaborate more closely. It is through such collaboration that the economy can achieve its aim of cheaper and easy access to credit and financial services similar to what pertains in developed and other emerging market economies”.

He said this as he delivered the keynote address at the recently held two-day third capital market conference organised by the Securities and Exchange Commission (SEC) at the Academy of Arts and Science in Accra.

The conference was on the theme ‘Ghana Beyond Aid: The Role of the Capital Market’.

Ghana’s financial sector is heavily skewed toward the banking sector, with the majority of businesses and individuals in need of credit looking to banks and specialised deposit taking institutions.

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The regulatory environment itself is biased toward banks: such that pension funds are forced to invest a majority of their funds in short-term fixed income instruments with banks and other specialised deposit taking institutions. This over-concentration on the banks has led to shaking public confidence in the entire financial sector after the collapse of seven banks.

The recent challenges in the banking sector have therefore led to a squeeze in credit to businesses and households, which according to Mr. Osafo-Maafo would not be the case if there is a well-diversified financial sector in the country.

“The compartmentisation and over-dependence of Ghana’s financial industry on the banking sector is creating serious inefficiencies and information asymmetry, leading to high cost of services to the Ghanaian consumer. It should be possible for pension funds to be deployed in areas of long-term strategic investments. This, however, can only be possible if there is collaboration,” he said.

Unstable macro economy shifts investors to short-term gains

Dr. Yeboa Amoa, Chairman of the SEC, added that the persistently unstable nature of Ghana’s macro-economy – high inflationary rates and expectations, high interest rate regime, declining value of the cedi, and inappropriate nature of the yield curve – has always induced adverse investor behaviour so they gravitate toward the short-end of the market rather than longer-dated financial assets.

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“As in previous years, in 2016 – out of the about GH¢31.06billion of funds under management in the fund management industry – close to 80 percent of portfolio allocation went into money market instruments, particularly fixed-income securities such as the 90- and 182-day T-bills. Pension funds, which naturally ought to have found their way to finance long-term projects, went into fixed deposits and short-term financial assets,” he bemoaned.

He added that the balance sheets of almost all the banks tell the same story, meaning that the private sector is being starved of needed long-term capital to remain strong, competitive and afloat.

“Ghana needs long-term capital to industrialise. No nation has used bank loans or short-term funds to industrialise. They have always depended on either bank-based or stock exchange-based capital markets to industrialise. It is time for this country to seriously turn to the capital market for its industrialisation,” he added.

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