Banking system fails the test

Despite efforts worldwide to woo customers with very innovative packages, banks in Ghana seem to be working perhaps a stretch outside that.

Not much has been done to create a favourable climate for people to save. Operators in the financial services industry have not even realised the onerous responsibility that is required of them in terms of their operational flexibility, customer care and product development, says Mina Korankye, a customer.

In deed, many Ghanaians are yet to fully realise the benefits of the technological advances made in banking services like networking of branches, electronic transfers and use of automated teller machines. On the contrary, people still hold large sums of money outside the banking system. Some, especially farmers in the rural areas, prefer to keep their monies under their pillows because they cannot withstand the ordeal that one has to go through before withdrawing their monies.

The banking halls continue to be inundated with the long queues as people jet in to collect their pay packs at the end of the month. With lots of bank notes to carry, customers are at times short-changed by the same banking personnel.

In spite of the inadequacies of the banking sector, a new development currently causing much discontent among many people is the increase in the minimum balance required by the banks. In the face of low public sector wages and increasing cost of living, many workers can hardly afford the luxury of leaving about 5000,000 cedis ($63) in their bank accounts, the minimum required by some banks. The banks do not offer attractive interest rates to compensate for the period that the money stays in the vaults.

Ghana s President, John Kufuor, has been on hand to demand better and more efficient services to Ghanaians. There is the need to modernise the country s banking system with the provision of innovative products and adoption of high professional standards that give prompt attention to customers, says Kufuor.

Ghana, he says, must also take advantage of the new technology that has transformed banking around the world and make sure she becomes part of the global banking village. Visitors to our country should not be put off by archaic banking practices be they tourists or business people, Kufuor recently told a group of bankers.

Even the Governor of the Bank of Ghana, Dr Paul Acquah, has waded into this by urging the banks to take a critical look at their charges and bring them in line with government s efforts at mobilising savings for national development. Banks should make sufficient progress on reducing bank charges and take mounting customer complaints seriously so as to counter threats to the liberal pricing system, he says.

Why the banks have not changed drastically remains quite puzzling, in that, the government and the Central Bank Bank of Ghana - have eased many administrative and regulatory bottlenecks hampering financial liberalisation in the country over the past few years.

It has been much expected that with the removal of these bottlenecks, the years ahead will engender even more intense and fierce competition in the banking business and the financial services sector as a whole. The expected turn of events has not materialised yet as the lack of competition among the banks has led to some level of complacency.

Now the government intends to introduce new regulatory initiatives to ensure efficient operation in the banking and payment system in the country. To this end, it is seeking to introduce three Bills before the country s Parliament this year.

One of the Bills is meant to strengthen the operational independence of the Bank of Ghana in its role as a regulatory authority and to ensure greater transparency in the regulatory framework for banking.

Another Bill, the Payment Systems Bill is in response to the need to develop non-cash payment products and clearing systems in order to reduce the over-dependence on cash payments. The third Bill, the Anti-Money Laundering Bill will seek to reinforce existing mechanisms for monitoring terrorist finances and money laundering within the global financial system. This is especially important as Ghana considers the need to introduce off-shore banking as well.

Following a prolonged economic downturn, Ghana embarked on a new path by launching the Economic Recovery Programme beginning from 1983. Yet, private savings and private investment have remained far below levels considered necessary for self-sustaining long-term growth.

According to official statistics, the savings rate in Ghana remains well below levels recorded in other countries with similar per capita income. Similarly, private investment is low enough to raise questions about the sustainability of Ghana s growth performance.

Ghana has never been able to record high savings rates. Gross national savings has not been rising lately. After falling to under 5 per cent in 1983, the savings rate recovered, but has since been hovering below 10 per cent. This level does not compare favourably with East Asian countries where savings rates of 30 per cent are common. Similarly, recorded investment rates are far below levels required to push Ghana into an accelerated growth mode.

The most prominent factors contributing to the low level of financial intermediation are, low confidence in the formal financial system, macroeconomic instability and lack of competition among financial institutions.

But there is a tremendous capacity for improving growth prospects by encouraging individuals to hold their savings in financial forms, a strategy which the banks have not been effective in addressing.

Restoring full confidence in the financial sector may be the most difficult obstacle to overcome. To understand the Ghanaian s mistrust of formal financial institutions, one has to go back a number of years, specifically in 1982 when the then government (of Rawlings) froze bank deposits in excess of 50,000 cedis to check inflation. Indeed, many people lost large sums of money, says Kofi Kyeremeh, an economist.

But the dislike for dealing with formal financial institutions has been compounded in recent years by the unstable macroeconomic environment. People rather feel it is not worth saving at all, since any return from that is negligible.

The Bank of Ghana will continue to look at ways to bolster confidence in the formal financial system over the coming years, assures Dr Acquah.

According to Dr Acquah, the Bank of Ghana should find ways to strengthen the weak financial institutions with a view to developing a robust and more competitive banking system. This is increasingly important as we pursue economic integration in West Africa, and prepare for effective integration in the global financial system, he indicates.

Indeed, the banks have a big task to restore and maintain public confidence to induce the public to save. Sometimes the inability of banks to pay cash on demand tends to erode the confidence of the public in the banking sector.

Perhaps, it might take much more for Ghana to reach the level of savings that it desires for its economic development unless of course the banks maintain a posture that the people could feel very close to and identify with.