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26.01.2005 Business & Finance

Shift in reliance on banks to security market more likely - Expert

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Accra, Jan. 26, GNA - A Financial Economist on Wednesday indicated that more investors would turn away from the banking institutions in the quest to meet their capital and other financial requirements to the use of the securities market when it firmly took root in the country. Dr Sam Mensah, Investment Banking Consultant, noted that with more licensed asset managers, stockbrokerage companies and mutual funds/units trust and non-bank financial institutions coming on stream, the shift from reliance on banks to securities was more likely.

He cited the case of the Ghana Stock Exchange, through which Cal Bank, Clydestone and Starwin Products Limited were able to raise a total of 159.3 billion cedis in new capital in 2004.

Dr Mensah said in the same period additional 67.2 billion cedis was realised through rights issues by companies already listed signalling that a more intensified "dis-intermediation" could be expected as the capital market deepened.

He was speaking on the theme: "The Challenges and Opportunities Facing the Financial Services Industry in a Stable Macro-Economic Environment" as part of activities to mark the Eighth National Banking Conference by the Chartered Institute of Bankers in Accra.

Dr Mensah said as participants in the financial markets played a major role in the transformation process and stood to benefit, there were also enormous opportunities for banking institutions.

"In other economies as the dis-intermediation is far advanced, banks have increasingly moved financial risks 'especially credit risks' off their balance sheets into securities and by offering risk management instruments such as swaps and other derivative transactions."

Touching on macroeconomic stability, he said while good beginnings had been made; so far the battle of stability was far from won. "Ghana is not completely out of the woods in terms of macroeconomic stability." Dr Mensah said it was obvious that the key macroeconomic indicators had shown favourable trends in the recent past, which reflected a budget balance.

"We also experienced 91-day Treasury Bill Rate, which is now at 17 per cent from 42 per cent in 2000 and the annual inflation rate is still volatile although it was down to 11 per cent in December 2004 compared to 33.45 per cent in 1999."

He said in his estimation the statistics did not represent macroeconomic stability since financial decision-making was based on expectations, which usually were rational.

Dr Mensah said to be on the right path to stability there was the need for policy credibility and consistency in order to stabilize the expectations of participants in the financial system.

"As the expectation of stability materialises, we have the opportunity to issue longer term deposits and invest in longer term assets."

He noted that in the meantime there was too much financial risk in the economy, which presented opportunities for providing risk management instruments such as simple interest rates.

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