Top of the league: Most leading banks have seen their profits increase

The banking industry is heavily dominated in terms of market share by a relatively small number of large banks, made up by a mix of state-backed and foreign-owned entities. The pack has long been led by the majority state-owned Ghana Commercial Bank (GCB), which benefits from a number of advantages that help underpin its position, though mergers and new entries have begun to eat away at its dominance.

With a handful of banks accounting for more than half of the assets, some observers argue that despite the large number of players, the sector is uncompetitive, and that the large market share of state-backed banks is particularly problematic in this respect. A monograph published by the Institute of Economic Affairs Ghana in 2010 entitled “High Interest Rates in Ghana – A Critical Analysis” blames a lack of competition in part on what it says is the inefficiency of operations at GCB as well as Agricultural Development Bank (ADB), and suggest such banks should be privatised or restructured to improve efficiency and ensure business decisions are not affected by political motivations.

However, the top banks’ dominance appears to be waning. GCB’s market share by assets is falling, having dropped from nearly 16% in 2008, for example. So too is third-largest bank by assets, Barclays, with its share of total assets down from 13.4% in 2008 to 9.8% in 2010. Overall the share of the top 10 banks by assets of total assets fell from 73.2% in 2008 to 68.5% in 2010. “Smaller banks may start to overtake their larger competitors in niche areas where banks need to be proactive,” said Sulemana Mohammed, a research analyst at Ecobank Capital. While the country’s leading banks are largely profitable and had a good year in 2011, in contrast to the wider trend, profits at GCB fell.

THE CAST: With 27 universal banks, Ghana’s banking scene is quite large and diverse, although a small number of major players dominate the market: in 2010 six of the 27 – GCB, Barclays, Ecobank, Standard Chartered, Agricultural Development Bank and Stanbic – accounted for more than half (53%) of total sector assets. GCB was the country’s largest bank by assets in 2010, accounting for 12.6% of the total. Based on annual reports, it kept that designation in 2011, with some 9.8% of total assets. It is the largest by capitalisation ( shareholder funds were GHS241m, or $142.9m, in 2010), and by deposits, with 13% of all deposits in 2010.

GCB had 157 branches at the end of 2011, and 2273 employees. It is very difficult for smaller banks to take market share from the likes of GCB as it already has branches throughout the country. Its dominance is also underpinned by the fact that the government pays civil service salaries through it, guaranteeing it commissions. However, recent merger activity may bring renewed competition at the top of the heap. In December 2011 Ecobank’s Togo-based parent company took over The Trust Bank (see analysis), merging the two into a single unit. Based on annual reports from 2011, with the takeover Ecobank now boasts some 8.53% of total banking assets in Ghana for the year, amounting to some GHS2.13bn ($1.263bn).

PERFORMANCE: Profits rose for most of Ghana’s largest banks in 2011, sometimes impressively so. A notable exception was GCB, the country’s largest, where net profit for 2011 stood at GHS17.97m ($10.7m), down almost 65% on 2010. The bank attributed the fall to increased operational costs and lower interest income, partly as a result of one-off factors such as staff changes and the restructuring of a loan to the Tema Oil Refinery. However, net profits for the first quarter of 2012 rose to GHS23.38m ($13.9m), an increase of 18%.

The UK’s Standard Chartered, by contrast saw improved performance in 2011, when profits after tax hit GHS77.7m ($46.1m), up nearly 7.6% from GHS72.2m ($42.8m) in 2010. Profits at the bank have been rising steadily over the past five years and have more than doubled since 2007. British bank Barclays, which saw profits rise by 40% in 2011 to GHS83m ($49.2m), thanks to factors such as reduced operational and loan impairment costs. Profit after tax at Ecobank, which began operations in 1990, rose 16% to GHS105.5m ($62.6m) for 2011. The bank operates 53 branches – to which The Trust Bank’s branches will be added as part of the merger – and employs 890 staff.

After-tax profits at the state-backed ADB, the country’s fifth-largest bank by assets in 2010 (a title which it appears to have kept in 2011, based on annual reports) also rose strongly, from GHS11.65m ($6.9m) in 2010 to GHS43.6m ($25.9m), a more than four-fold increase. ADB, which is the primary financer of farming in the country, increased its branch network from 65 to 76 over the course of the year, while staff numbers rose considerably, from 1168 to 1345.

The bank was established in 1965 and is 100% owned by the state (52% by the government and 48% by the Bank of Ghana via the Financial Investment Trust). In 2011 the bank brought its non-performing loans (NPL) ratio down to 6.68%, from 11.82% in 2010, having written off GHS64m ($37.9m) of NPLs in 2010.

South African-owned Stanbic and French subsidiary SG-SSB, ranked sixth and eighth by assets in 2010 and 2011, based on annual reports, also had strong performances in 2011. “2011 was a good year for us and we met most of our targets,” said Alhassan Andani, the managing director of Stanbic Bank. “The first quarter of 2012 was a bit slow, but the second quarter is now looking good,” he said, speaking in May 2012. “We saw increased activity in 2011 and also opened more branches,” Gilbert Hie, the managing director of SG-SSB, told OBG. Profits at SG-SSB increased 15% on 2010 figures to reach some GHS22.9m ($13.6m).

CORPORATE COMPETITION: Foreign-owned banks make up six of the top 10 banks by capitalisation (based on 2010 figures). Many of the major foreign banks – both European and African – are by and large more focused on the corporate market rather than on small and medium-sized enterprises (SMEs) or retail banking. For example around 55% of the business of SGSSB, part of the Société Générale Group, is in the corporate sector, followed by between 25% and 30% in the retail segment, and 10% in the SME segment.

“Our first two priorities are corporate and individual markets,” said Hie. “Some banks are prioritising SMEs but that is not our focus.” Nevertheless, the bank is keen to ensure that it remains diversified. “We are looking to diversify into sectors such as manufacturing in order to avoid over-dependence on oil and gas and cocoa financing,” Hie told OBG.

Standard Chartered, despite being the third-largest bank by assets in 2010 and 2011, based on annual reports, had just 21 branches as of the end of 2011, pointing to a lack of reliance on the retail market. “The banks that focus on the corporate sector are seeing their margins squeezed by their clients,” Charles Otoo, the general manager of First National Bank, told OBG. “These players have been repeatedly reducing their rates in order to keep business. Some corporate customers now ask for base rate minus.”

This may have negatively affected other clients. “Competition for corporate customers has become worse since the entry of Nigerian banks into the sector,” said Nii Anyetei Ampa-Sowa, the vice-president and head of research at Databank. “Banks are competing for the best corporate clients by offering base rate minus and charging others more in order to get the money back.”

Furthermore, those firms working with infrastructure improvements remain a potent income source. “One of the most important areas for banking in Ghana is lending to companies in infrastructure projects,” Benjamin T Dabrah, the managing director of Barclays, told OBG. “The government has made it clear this is a priority and there is a great need for funding these of projects.”