FINANCE IN GHANA

GROWING IN STRENGTH AND SOPHISTICATION

Ghana’s financial services sector is comprised mainly of the banking sector, insurance, and capital markets. The sector is regulated by four major regulatory bodies. Namely the Bank of Ghana (BoG), the National Pensions Regulatory Authority (NPRA), the National Insurance Commission (NIC) and the Securities and Exchange Commission (SEC). The financial sector in Ghana plays an important role in the functioning of the economy through intermediation and provision of credit support to other sectors. The Bank of Ghana is one of the first African Banks to declare works on a digital currency initiative in line with the country’s vision to digitise the financial sector.

The financial sector is dominated by banks. The banking sector is well structured by the Bank of Ghana and has been developing steadily alongside reforms within the sector. The banking sector performed well in 2021, with continued increase in assets, deposits, and investments, according to the Bank of Ghana. A total of GHs36.4 billion new loans have been given by commercial banks to the economy, representing a 6.8 per cent increase over new advances of GHs34.1 billion extended in 2020.

In 2021, Ghanaian banks’ total assets increased by 20.4 per cent, reaching GHs179.8 billion in December. The Non Performing Loans (NPL) ratio fell to 15.2 per cent at the end of December 2021 from a high of 17.3 per cent in August 2021. In comparison, the NPL ratio in December 2020 was 14.8 per cent. Notwithstanding the marginal increase in NonPerforming Loans, the banking industry remained solvent, with an average Capital Adequacy Ratio (CAR) of 19.6 per cent, significantly over the statutory minimum of 11.5 per cent. The ratio of core liquid assets to short-term liabilities was 25.9 per cent in December 2021, down from 27.8 per cent a year earlier, while net interest income increased by 14.5 per cent to GHs12.8 billion, down from 20.9 per cent a year earlier, largely due to interest rate declines. Generally, the sector remained well-capitalised, liquid, and profitable with strong buffers to withstand adverse shocks and support economic recovery efforts. Banks have expressed their willingness to incorporate remote working into their work practices and are therefore looking to invest in technology, partnerships, and training.

With a strong demand of financial technology (fintech) in the Ghanaian market and the government’s Digital Ghana Agenda, the Bank of Ghana has announced the piloting of the digital cedi, or ‘e-cedi,’ intended to supplement and serve as a digital alternative to physical cash, driving the Ghanaian cash lite agenda by promoting diverse digital payments and ensuring a secure and robust payment infrastructure in Ghana. It also aims to make payments possible without the use of bank accounts, contracts, or smartphones, thereby increasing the use of digital services and financial inclusion across all demographic groups.

The Insurance industry is growing vigorously in both the life and general markets. General insurance has a larger asset base than life assurance; however, life assurance has grown at a faster pace in the last five years because of the prospects in the sector. This is evidenced by the entry of international giants such as Prudential, Old Mutual and Hollard. With this development, it is projected that in the next five years, life assurance will control more assets than nonlife insurance due to the rising middle-income segment of the population.

The passage of the new Insurance Act 2021 (Act 1061), which replaces the Insurance Act of 2006 (Act 724), has provided further growth prospects in the insurance industry. The National Insurance Commission has also increased the minimum capital requirement of insurance companies to GHs50m (USD8.6m) from GHs15m effective January 2022. The new regulatory framework will ensure compliance with international standards, for example on governance and internal control, risk-based supervision, group supervision, preventive, and corrective measures.