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31.10.2007 Business & Finance

Banks must sit up

Banks must sit up

Arguably, the financial markets, specifically the banking industry, have taken a different trend in the industry's life cycle.

It only took a couple of new entrants (mainly Nigerian banks) to shake up the industry in recent years.

Hitherto, banks in Ghana were literally sleeping and very inactive as though the industry had a “lifeless time”.

Prior to recent industry shake-up, the banks would sit and wait for customers to knock on their doors, coupled with conservative and bureaucratic practices. These were serious costs which they did not care to measure.

Many high street banks closed their doors to certain group of consumers and rather opted for fast track traders such as customers who would borrow for imported goods and repay almost immediately as against building consumer loyalty with customers in the manufacturing and agricultural sectors.

Ghanaian businesses were made to suffer harsh financial moments. The only firms spared were those that had good working relationships with a particular bank.

Thus, individuals also suffered worse practices from the banks, which introduced stiffer conditions, such as account closure fees and fees paid for maintaining balances below a certain stipulated sum, usually GH¢200 (¢2 million). Such acts denied some depositors the right to banking.

Besides the hiking bank charges and transaction costs, consumers were deprived of opening a bank account unless with GH¢200 on most occasions.

These banks became dictators so much so that it was no more interesting to open a bank account, particularly when one was poor.

While some of the high street banks closed many of their branches in Accra and other regional capitals, some remained opened but with little to offer the ordinary Ghanaian customer.

Staff behaviour was very uncompromising as they sat relaxed at the banking halls for most part of the day.

The Bank of Ghana (BoG) reforms to allow other banks to come into the market was a very bold and objective step.

Consumers now have the opportunity through market fragmentation to opt for other banking services which banks had hitherto deprived them of.

The bold step by the central bank to allow competition to flourish and determine the market level must be loudly applauded.

Ghanaians and other residents in Ghana can now walk into banks comfortably to transact business. The banks have now woken up. There is now a changing face in the financial sector in Ghana.

Recent developments have given some credence to the customer who can now dictate the pace and prices of banking services.

That is to say, individuals with good cash flow, equity and so on can walk to a bank and demand funding for businesses and projects and propose how much interest they were willing to pay.

Consumers now have choice in banking; they can now 'window-shop' in the market and select the best offers.

Conversely, individuals could easily negotiate with the bank interests on deposits, such as call account and fixed deposits.

The assets and liability management model is now made and managed better by the consuming public than the banks have done in the past.

Market forces — demand and supply — is now driving the banking industry effectively.

Banks have now turned to registering loyal customers in their database to provide them with excellent services. They even go beyond providing financial services and offer social and other supports. The true era of competition is here.

As competition continuously creeps into the industry, banks cannot afford to sit on these huge monies without lending while shareholders of these banks are eager to hear about favourable returns on their investments.

Banks are now in what I call “a very serious cash two situations”:

They cannot sit on these funds and not generate profits.

They are also very cautious not to lend bad loans for fear of potential defaults.

Now, instead of the banks looking into other profitable ways of earning good returns and declaring good dividends to their owners, they have rather become a fashion for them to mount huge buildings with top class decorations, coupled with the hiring of market financial gurus with the hope to promote and earn profits for their owners (i.e. investors).

The danger is that banks are once again losing one of the key essence of management tool, 'the low cost strategy', which is the key to sustaining business in times of growing competition.

If the wish of the banks is to establish consumer confidence, then they ought to look at the essence again.

It is not a viable step to winning public confidence because the trend of consumer needs is rapidly changing.

The banks have the potential to:

1 Lose their top market financial gurus if the environments are not right (e.g. management styles and culture). These staff members shall continuously migrate from one bank to the other until they feel the sense of belonging with a particular bank.

Remember, some of the new banks have lost some of the poached men and women they paid huge sums of monies, gave them excellent conditions of services and posh cars. This is because money does not satisfy all needs.

In Abraham Maslow's 'hierarchy of needs' should not be taken for granted.

The individuals need an environment in which they can contribute their views, share their experiences and be satisfied that they have helped to carve a success in the firm they are working.

Banks with high executive turnover have the potential to lose the confidence the market, investors and the public have in them.

2. Lose consumer confidence in particular, when their services do not match the name they are claiming to have. Consumers want excellent services.

If a consumer can find a little kiosk (that is licensed to operate) and offers speedy, friendly and responsible services, they will by all means opt for such services from the kiosk as opposed to going to an elegant structure and have little satisfaction.

It is not viable to take to invest huge sums of monies in a long term capital when the revenue stream is continuously shrinking.

The banks are on a thin edge to making economically acceptable profit for their owners even under a stiff competitive environment.

Banks in Ghana have in the past enjoyed some form of monopolistic powers but the stone is now turned.

Those who can stay are those that can apply excellent principles in management to ensure sustainability, making investors happy, retaining skilled and motivated staff and providing excellent consumer services.

The author is the founder of the Association of Certified Enterpreneurs and Express Transfer International