Ghana's banking sector is witnessing an increasingly competitive environment underpinned by an improving economic climate, dynamic regulatory changes and increasing number of industry players.
These developments have fueled a deepening of the financial intermediation role of the industry to further enhance its contribution to the economic development of the country.
With relative inflation control and exchange rate stability impacting positively on deposit mobilisation, the declining interest rate regime and reduction in reserve requirements by the Bank of Ghana have also set the tone for credit expansion.
The increasing number of industry players, the expansion in bank branches and other distribution outlets, as well as the continuous introduction of innovative products and services, have engendered greater competition among banks.
An analysis of the 2006 financial results of the banking industry players reveals the industry recorded the highest growth in the key indicators of assets, deposits and loans over the last few years.
Key balance sheet indicators: 2003 – 2006
As seen from the table, the industry's 40 per cent growth in total assets in 2006 was phenomenal, surpassing the growth rates achieved in 2004 and 2005. Viewed differently, after adding ¢5 trillion in assets in 2005, the industry grew its assets base by almost ¢15 trillion.
This was achieved via a strong growth in deposit mobilisation and the shoring up of the capital base of the industry players.
The industry's deposit base and loan portfolio also recorded impressive 40 per cent and 45 per cent growth rates respectively in 2006 – which also represent the highest rates recorded over the last three years. These results indicate that the improving economic and regulatory environment and competitive pressures are positively contributing to the growth of the industry.
The industry's loan to deposit ratio, which is a measure of financial intermediation, has also picked up from 54 per cent in 2003 to 67 per cent in 2006.
Competition heats up
The analysis also shows that in 2006 none of the top six banks (by assets size) could hold onto its market share of total assets it had in 2005, as they lost market share to the competition.
Although the top six banks continue to dominate the banking industry, they have over the last few years experienced a gradual but consistent decline in their market share.
Accounting for 76.6 per cent of the industry's assets size in 2003, the six largest banks have seen their dominance gradually eroding with a market share of 73.1 per cent in 2004 and 70.2 per cent in 2005.
With competitive pressures intensifying in 2006, none of these banks was able to hold onto its market share as they all lost market share and accounted for 65.5 per cent of the industry's assets base.
Ecobank Ghana, acclaimed as one of the best banks in Ghana's banking industry by independent industry analysts and customers via its dominance in the Ghana Banking Awards, has continued to show consistent growth in the banking industry.
Despite the competitive pressures, Ecobank Ghana moved up further from being the fifth largest bank to the fourth largest bank in terms of total assets.
This represents the second year in succession that the bank has scaled the competition and moved up on the banking ladder. Ecobank Ghana moved from the sixth slot on the banking ladder in 2004 to the fifth position based on the 2005 financial results.
On the outlook, it is important that macroeconomic stability is not only maintained but improved further to sustain the growth in the industry.
For some industry players, consolidations will be the key in enhancing their competitive strength in the industry. As competition intensifies in 2007, the industry could witness some mergers and acquisitions. However, the evidence from the 2006 results points to the fact that there is indeed a “bigger bankable cake” out there for all the industry players to have a respectable share.
Article By John Dadzie