Thursday, December 10, 2009

HISTORY OF GHANAIAN BANKING

In 1953 the Bank of the Gold Coast was set up by the then Government and Alfred Engleston, formerly of the Bank of England.
With the passage of time, the Bank was split into two: the Bank of Ghana, operating as a bank of issue, to be developed into a complete central bank; and the Ghana Commercial Bank, to be developed into the largest commercial bank with a monopoly on the accounts of public corporation.
In July 1957, Alfred Engleston was appointed as the first Governor of the Bank of Ghana.
As expected, the Bank of Ghana took over the management of the currency and in July 1958 it issued its first National Currency - the Cedi - to replace the old West African currency notes. The Ghana Commercial Bank assumed the role and functions of Government bankers and began to take over the finances of most Government departments and public corporations.The Bank of Ghana quickly developed into a strong competitor of the expatriate banks by opening branches in most of the towns and centres in which they had been operating as well as moving into new areas such as the Ashanti and the Northern Regions.The advent of the new Government, elected by popular vote in 1957, brought the establishment of more banks.
Banks incorporated by legislation between the period 1957 to 1965 include: the Ghana Investment Bank as an Investment Banking Institution; the Agricultural Development Bank for the development of Agriculture; the Merchant Bank for merchant banking; and the Social Security Bank to encourage savings. In conformity with the economic policy of the time all these institutions were incorporated as state-owned banks.
By the early 1966,it has clear the country was experiencing economic difficulties that led to change of government.
1983 saw an attempt to reverse the situation, the Government, with the assistance and guidance of the International Monetary Fund (IMF), introduced the Economic Recovery Programme (ERP). This signaled the end of Socialism in Ghana and provided a useful tool for economic development by embracing the market economy; privatisation; the liberalisation of trade and financial restrictions; and the divestiture of Government interests in public corporations.Import licensing was quickly abandoned and exemptions were granted in relation to many of the restrictive clauses of the Exchange Control Act. Furthermore, an Investment Code was enacted to make provision for the relaxation of many of the earlier restrictions in trade and finance and to encourage private investments. These newly adopted concepts were incorporated into legislation, particularly in regards to banking, non-banking financial institutions and securities.Thus, the Banking Law was enacted in 1989, enabling suitable locally incorporated bodies to file applications for licences to operate as banking institutions. Subsequently, a number of corporate entities were licensed to operate as banks, including Meridien (BIAO) Trust Bank, CAL Merchant Bank, Allied and Metropolitan and ECOBANK.
Provision is made for the licensing of non-banking financial institutions under the Financial Institutions (Non-Banking) Law 1993 (P.N.D.C.L. 328). This legislation makes provision for the licensing of non-banking financial institutions seeking to operate as, inter alia, discount companies, finance houses, building societies, or leasing and hire-purchase companies. Such institutions now include the Home Finance Corporation which provides finance for the acquisition of houses and the City Savings and Loans Limited which grants various forms of financial assistance and accommodation to small scale business enterprises.
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.

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