The financial sector is one of the most dominant and important sectors in any economic system because of its involvement in the promotion of economic growth and development. Banks are key players in the financial sector because of their unique role as financial intermediary. As intermediaries, they facilitate capital that enhances productivity thereby promoting economic growth. Banks’ ability to play this positive role in economic growth and development depends on the health, soundness and stability of the financial system. The banking sector in the third world economies has been grossly under managed when compared with their counterparts in the developed countries of the world, even though the developed world has also had their fair share of major difficulties. This has made it imperative for Ghanaian banks to sanitize and restructure their operational processes so as to be in line with the global trends, and to survive any depressed economy, if there is one.
The talk of bank mergers is thicker in the air now, than ever before. It is reliably learnt that the government, in this case the regulator, Bank of Ghana at the Centre is serious with the recapitalization of banks and a possible consolidation. It has been observed that a significant relationship exists between profit of banks and recapitalization. The process of recapitalization has been in existence right from the 1980’s, but it is more intensified in recent time because of the impact of globalization which is precipitated by continuous integration of the world market and economies.
Recapitalization is the substantial injection of capital into an institution. This implies making the institution more solid or stronger by increasing its capital base (Unugbro 2009). It is predicated upon the need for re-orientation and re-positioning of an existing status quo to attain and sustain an efficient and effective state of affairs.
It has also been discovered that there are other factors outside the locus of control of banks that affects lending rate. Such factors as inflation, general micro economic factors, monetary policy, amongst others.
This article also revealed that there is no significant relationship between Recapitalization and shareholders’ funds, which also contradicts our expectation. It has been suggested elsewhere that Recapitalization should be sustained until Ghanaian banks are among the first 100 banks in the world.
Standard regulations should be enacted to control bank services to prevent exploitation tendencies. Various types of competitions should be stimulated thereby pushing Ghanaian banks towards global trends.
The Central bank should perform their duties effectively and modern banking practice should be transmitted from advanced countries.
The small size of most of the banks in Ghana, each with expensive headquarters separate investments in software and hardware, heavy fixed cost and operating expenses and with great bunching of branches in few commercial centres has led to a high average cost for the sector (Okwe, 2006). This influenced the cost of intermediation and the spread between deposit and lending rates. Again, it also puts undue pressure on banks to engage in sharp practices as means of survival. In effect, some of the banks are not engaging in strict banking business in terms of financial intermediation. They are merely traders, trading in foreign exchange, in government treasury bills and sometimes in direct importation of goods through shell companies (Akanbi and Oso, 2005). The central bank over the years have noticed the weaknesses of some of the ailing banks and some have manifested in their overdrawn position with them, high incidence of non-performing loans, capital deficiencies, weak management and poor corporate governance and decisions. So, what is in the offing? What will be the effect of bank consolidations? What do mergers and acquisition mean to ordinary employees? What are their implications and consequences? Whether bank consolidations are good or bad in Ghanaian context? We will analyze all these points from various perspectives hereunder.
KWASI KYERE (Ph.D.)
CHIEF EXECUTIVE OFFICER;
STAR ALLIANCE MICROFINANCE LIMITED