The reserves of commercial banks in the country have been on consistent decline since the first quarter of the year following a sharp increase in the withdrawal of deposits and saving by their customers.

The development which was first noticed by the Bank of Ghana (BoG) in March, this year, has affected the deposit portfolios and loan books of the various banks, partly resulting in the general squeeze in credit supply to the private sector in recent times. 

"This thing started this year, somewhere around March, when we noticed that deposits have not been growing as it was in the past," the Deputy Director of the Financial Stability Department at BoG, Dr Settor Amediku, told the GRAPHIC BUSINESS on December 11. 

"What we realised was that most people were withdrawing their funds from the commercial banks into microfinance institutions (MFls)," he added. 

 

BoG Financial Stability Report

THE situation has also been confirmed by BoG's monthly Financial Stability reports, which gauge developments in the local financial sector. The June 2013 report, for instance, showed that total deposits of the industry grew by 13.3 per cent to Ghc18.03 million in that  month compared to a 33.2 per cent year-on-year growth rate recorded in June last year. 

The trend continued into September where the report indicated that deposits of the banking industry grew by 15.7 per cent to Ghc17.6 million as against a 27.2 per cent year-on-year growth rate posted within the same period last year. 

Similar revelations were made in the previous reports. Asked if the phenomenon was peculiar to some banks in the country, the Deputy Director of the Financial Stability Department at the BoG answered in the negative, explaining that it was a general occurrence in the industry. 

"It's across board; almost all the banks are losing. There are no speciftc ones," he said. He, however, admitted that the development has affected cash flow to the private sector, given that it limits the quantity of funds that commercial banks can lend to businesses. 

A banking consultant and lecturer, Nana Otuo Acheampong, also admitted that most customers had withdrawn their deposits from the commercial banks into the MFIs but added that the situation was mainly due to the juicy rates offered by the Non-Banking Financial Institutions (NBFIs) in return for deposits.

"Between January and September there were money going to the microfinance as opposed to the commercial banks and the reason was because of the margins. Depositors had higher interest rates on their deposists with the non-universal banks as suppose to the universal banks, so lots of the money went to the non- universal banks," Nana Acheampong, who is also the Head of the Osei Tutu II Centre for Executive Education and Research (OTCEER), said. 

The Deputy Director of the Financial Stability Department at the BoG also explained that the situation was mainly due to the proliferation of Microfinance Institutions (MFIs) and Rural and Community Banks (RCBs) in the country. 

The number of RCBs has risen from 133 in 2012 to 139 as of  September last year. That of MFIs also nearly doubled from 226 in 2012 to 337 this year, something Dr Settor said had led to heightened competition for savings and deposits from the general public. 

But given that the NBFIs operate mostly in the hinterlands and are also often ready to offer better rates in exchange for deposits compared to the commercial banks, both Nana Otuo and Dr Settor said they mostly win. 

"It is the result of competition and more competition is better than no competition. But it now means that the commercial banks will have to do something (to be able to get more deposits); it is a challenge to them," Dr Settor added. 

 

Promotions to the rescue

Given that the reduction in commercial banks' savings and deposit levels could threaten their ability to lend more to the consuming public and subsequently earn some revenues, most of these banks are now aggressively pursuing measures that will help bolster their savings portfolios. 

One such measure is the running of deposit and/ or savings promotions to help motivate customers to save with them. 

Fidelity Bank, which launched its Big Fat Zero Promotion on August 21, said it was seeking to raise some Ghc50 million within the eight-month period that the campaign will run. 

Similar targets were set by the likes of Access Bank and uniBank, whose promotions have since ended and the GRAPHIC BUSINESS gather that they each mobilised about the same amount as the target set by Fidelity. 

These campaigns, Dr Settor said were in the right direction. 

"You can use any marketing strategy to get in your deposits. BoG has no issue with anyone coming up with a promotion provided you abide by the rules and regulations governing promotions. ," he said.