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Ghana Banking
Ghana has a well-developed banking system that was used
extensively by previous governments to finance attempts to develop
the local economy. By the late 1980s, the banks had suffered
substantial losses from a number of bad loans in their portfolios.
In addition, cedi depreciation had raised the banks' external
liabilities. In order to strengthen the banking sector, the
government in 1988 initiated comprehensive reforms. In particular,
the amended banking law of August 1989 required banks to maintain
a minimum capital base equivalent to 6 percent of net assets
adjusted for risk and to establish uniform accounting and auditing
standards. The law also introduced limits on risk exposure to
single borrowers and sectors. These measures strengthened central
bank supervision, improved the regulatory framework, and gradually
improved resource mobilization and credit allocation.
Other efforts were made to ease the accumulated burden of bad
loans on the banks in the late 1980s. In 1989 the Bank of Ghana
issued temporary promissory notes to replace non-performing loans
and other government-guaranteed obligations to state-owned
enterprises as of the end of 1988 and on private-sector loans in
1989. The latter were then replaced by interest-bearing bonds from
the Bank of Ghana or were offset against debts to the bank.
Effectively, the government stepped in and repaid the loans. By
late 1989, some ¢62 billion worth of non-performing assets had been
offset or replaced by central bank bonds totaling about ¢47
billion.
In the early 1990s, the banking system included the central
bank (the Bank of Ghana), three large commercial banks (Ghana
Commercial Bank, Barclays Bank of Ghana, and Standard Chartered
Bank of Ghana), and seven secondary banks. Three merchant banks
specialized in corporate finance, advisory services, and money and
capital market activities: Merchant Bank, Ecobank Ghana, and
Continental Acceptances; the latter two were both established in
1990. These and the commercial banks placed short-term deposits
with two discount houses set up to enhance the development of
Ghana's domestic money market: Consolidated Discount House and
Securities Discount House, established in November 1987 and June
1991, respectively. At the bottom of the tier were 100 rural banks,
which accounted for only 5 percent of the banking system's total
assets.
By the end of 1990, banks were able to meet the new capital
adequacy requirements. In addition, the government announced the
establishment of the First Finance Company in 1991 to help
distressed but potentially viable companies to recapitalize. The
company was established as part of the financial sector adjustment
program in response to requests for easier access to credit for
companies hit by ERP policies. The company was a joint venture
between the Bank of Ghana and the Social Security and National
Insurance Trust.
Despite offering some of the highest lending rates in West
Africa, Ghana's banks enjoyed increased business in the early 1990s
because of high deposit rates. The Bank of Ghana raised its
rediscount rate in stages to around 35 percent by mid-1991, driving
money market and commercial bank interest rates well above the rate
of inflation, thus making real interest rates substantially
positive. As inflation decelerated over the year, the rediscount
rate was lowered in stages to 20 percent, bringing lending rates
down accordingly.
At the same time, more money moved into the banking system in
1991 than in 1990; time and savings deposits grew by 45 percent to
¢94.6 billion and demand deposits rose to ¢118.7 billion. Loans
also rose, with banks' claims on the private sector up by 24.1
percent, to ¢117.4 billion. Banks' claims on the central government
continued to shrink in 1991, falling to a mere ¢860 million from
¢2.95 billion in 1990, a reflection of continued budget surpluses.
Claims on nonfinancial public enterprises rose by 12.6 percent to
¢27.1 billion.
Foreign bank accounts, which were frozen shortly after the PNDC
came to power, have been permitted since mid-1985, in a move to
increase local supplies of foreign exchange. Foreign currency
accounts may be held in any of seven authorized banks, with
interest exempt from Ghanaian tax and with transfers abroad free
from foreign exchange control restrictions. Foreign exchange
earnings from exports, however, are specifically excluded from
these arrangements.
The Ghana Stock Exchange began operations in November 1990,
with twelve companies considered to be the best performers in the
country. Although there were stringent minimum investment criteria
for registration on the exchange, the government hoped that share
ownership would encourage the formation of new companies and would
increase savings and investment. After only one month in operation,
however, the exchange lost a major French affiliate, which reduced
the starting market capitalization to about US$92.5 million.
By the end of 1990, the aggregate effect of price and volume
movements had resulted in a further 10.8 percent decrease in market
capitalization. Trading steadily increased, however, and by midJuly 1992, 2.8 million shares were being traded with a value of
¢233 million, up from 1.7 million shares with a value of ¢145
million in November 1991. The market continued to be small, listing
only thirteen companies, more than half in retailing and brewing.
In June 1993, Accra removed exchange control restrictions and gave
permission to non-resident Ghanaians and foreigners to invest on
the exchange without prior approval from the Bank of Ghana. In
April 1994, the exchange received a considerable boost after the
government sold part of its holdings in Ashanti Goldfields
Corporation.
Data as of November 1994
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