Our lives begin to end the day we become silent
about things that matter.
– Martin Luther King, Jr.
Dear Readers, this article will be part of the concluding articles on the relevance of history in managing risks in financial institutions. You will realize that many of the causes of global bank failures, are varied. However, there is enough evidence for me to dare say that many of the underlying causes stem from “the people factor”. Before we look at bank runs and crises in Ghana, let us we look at the history of banking in Ghana.
History of Banking in Ghana
In 1891 George Neville, a representative of Elder Dempster & Co in Lagos, Nigeria and a colleague, Alfred Lewis Jones, arranged with the African Banking Corporation, established in South Africa to establish a branch in Lagos. The Bank of British West Africa (BBWA) was registered as a limited liability company by the directors of Elder Dempster and began trading on March 31st, 1894, initially in England and in Lagos. In 1896, a new branch of the Bank was opened in Accra and in the Gold Coast (now known as Ghana).
By 1918, the operations of BBWA in the Gold Coast had been so successful that another expatriate bank, the Colonial Bank decided to commence banking there. In 1925 the Colonial Bank merged with the Anglo-Egyptian Bank, the National Bank of South Africa and Barclays Bank under the leadership and name of Barclays Bank (Dominion Colonial and Overseas). Barclays soon developed into a strong competitor of BBWA.
From the late 1920s until the early 1950s, banking services in the Gold Coast continued to be exclusively provided by these two expatriate banks.
After Ghana’s independence, Alfred Engleston was appointed as the first Governor of the Bank of Ghana. As expected, the Bank of Ghana took over the management of the currency and in July 1958 issued its first National Currency – the Cedi – to replace the old West African currency notes. The Ghana Commercial Bank assumed the role and functions of Government bankers and began to take over the finances of most Government departments and public corporations.
Establishment of State-Owned Banks
Many more banks came aboard between 1957 and 1965: the Ghana Investment Bank as an Investment Banking Institution; the Agricultural Development Bank for the development of Agriculture; the Merchant Bank for merchant banking; and the Social Security Bank to encourage savings. In conformity with the economic policy of the time all these institutions were incorporated as state-owned banks.
In 1963, it was becoming increasingly clear that the country was experiencing serious economic difficulties due to its Socialist policies. These economic difficulties led to a change in Government in 1966. However, the country continued to face economic problems until 1983 when, in an attempt to reverse the situation, the Government, with the assistance and guidance of the International Monetary Fund (IMF), introduced the Economic Recovery Programme (ERP).
This signaled the end of Socialism in Ghana and the start of a market economy, privatization; the liberalization of trade and financial restrictions, and the divestiture of Government interests in public corporations.
The Banking Law and more banks
The first banking Law was enacted in 1989, enabling suitable locally incorporated bodies to file applications for licences to operate as banking institutions. These included Meridien (BIAO) Trust Bank, CAL Merchant Bank, Allied and Metropolitan and ECOBANK.
Non-Bank Financial Institutions
Provision was made for the licensing of non-banking financial institutions under the Financial Institutions (Non-Banking) Law 1993 (P.N.D.C.L. 328). This legislation made provision for the licensing of non-banking financial institutions seeking to operate as, inter alia, discount companies, finance houses, building societies, or leasing and hire-purchase companies.
Such institutions included the Home Finance Corporation which provided finance for the acquisition of houses and the City Savings and Loans Limited which granted various forms of financial assistance and accommodation to small scale business enterprises.
1983 – The ERP
The Government launched a World Bank and IMF sponsored Economic Recovery Programme (ERP) in 1983 resulting in policy reforms. In 1988 the Government initiated the Financial Sector Adjustment Programme (FINSAP) as part of the ERP. Under FINSAP, the banking and financial services industry were restructured and revitalized through a number of policies and measures covering legislative, regulatory and financial issues. The focus of the financial restructuring was to inject new capital and clean up the asset portfolio of the state-owned banks.
Provision was made in the ERP for measures to be taken to ensure economic discipline and financial control. Such provisions cover: the appointment of suitably qualified corporate bodies and persons; stringent procedures to avoid mismanagement; heavy penalties with regard to fraud and embezzlement and other criminal acts.
Wide powers were also granted to the Bank of Ghana, the Minister for Finance and Economic Affairs, the Securities Regulatory Commission and the Head of Banking Supervision, appointed under the Banking Law 1989, to ensure effective control and proper management and for the early detection of irregularities.
Divestiture of State-Owned Banks
An important dimension of FINSAP was the divestiture of state-owned banks, which sought to reduce state control and ownership in industry. Under the first phase of the programme, three state-owned banks were slated for divestiture including GCB and the Social Security Bank Limited (SSB).
The Bank of British West Africa is now known as the Standard Chartered Bank (Ghana) Limited and Barclays Bank (Ghana) Limited, now known as ABSA bank. They were incorporated under the Companies Code 1963 (Act 171) as Ghanaian companies as required by the Banking Law 1989.
1990s – 2000s
The past three decades have witnessed a massive influx of foreign-owned banks such as Standard Trust (now UBA), Intercontinental Bank (now Access Bank), Stanbic Bank, Zenith Bank, Amalgamated Bank, now (Bank of Africa). In addition, locally-owned Ghanaian banks like UT Bank which acquired the former Metropolitan and Allied Bank, Fidelity Bank, Energy Bank, The Royal Bank, Capital Bank, Sovereign Bank, Beige Bank, Heritage Bank, Construction Bank, Premier Bank, Omni Bank etc.
The influx of financial institutions reached a peak in 2018 when we had 35 Universal banks, 135 rural and community banks, and 49 non-banking financial institutions including savings and loans, and leasing and mortgage firms.
In addition, there are almost 400 MFIs licensed by Bank of Ghana, as well as thousands of susu collectors, who serve people in a specific area or organization. There were two mergers during this period: the Ecobank/Trust Bank merger and the Access Bank/Intercontinental Bank merger. Apart from the locally owned bank, the rest are foreign-majority-owned by Nigerian, South African, European, and American Investors.
Another key aspect of financial intermediation consist of microfinance Institutions, consisting Rural and Community Banks, Savings and Loans Companies, Financial NGOs, Primary Societies of CUA, Susu Collectors Association of GCSCA, Development and commercial banks with microfinance programs and linkages, Micro-insurance and micro-leasing services. The Rural and Community banks also play very important role in microfinance in the country.
These banks were established specifically to advance loans to small enterprises, farmers, individuals and others within their catchment areas. Microfinance consists primarily of providing financial services including, savings, micro-credit, micro insurance, micro leasing and transfers in relatively small transactions designed to be accessible to micro-enterprises and to low-income households.
Watch out for the finale..
Dear readers, the above is just an ad-hoc summary of the history of banking in Ghana based on research collected from various documents. Next week, we will update ourselves of the contemporary banking issues in Ghana over the period 2016 to date.This will prove useful when we discuss the new Banking Act and the Bank of Ghana’s Regulations and Directives to sanitize the precarious state of some banks which resulted in various bank runs, collapses and other crises during that period. The numerous reasons that caused the crises will lead us to ask the pertinent question: Even in 2021, will we ever learn from history?
TO BE CONTINUED
ABOUT THE AUTHOR
Alberta Quarcoopome is a Fellow of the Institute of Bankers, and CEO of ALKAN Business Consult Ltd. She is the Author of Three books: “The 21st Century Bank Teller: A Strategic Partner” and “My Front Desk Experience: A Young Banker’s Story” and “The Modern Branch Manager’s Companion”. She uses her experience and practical case studies, training young bankers in operational risk management, sales, customer service, banking operations and fraud.