Entry Of Foreign Banks In Ghana

Spread the love

With globalization, advancement in IT and financial liberalization, many countries have seen the penetration of foreign banks into their banking industry. On this matter, Ghana is not an exception. Ghana is located in West Africa and shares borders with three francophone countries – Togo (East), Cote D’Ivoire (West), Burkina Faso (North), and south is the North Atlantic Ocean. The country is blessed with natural resources.

Ghana is seeing tremendous growth in its banking system. This growth is marked by increase in branches, increase in bank size and use of IT to provide services to clients. Contributing to this growth are changes in regulation and supervision and advancement in Information Technology. Of the 26 banks operating in the country, 25 of them are operating as universal banks, and one operating as both offshore and universal bank. The presence of foreign banks in the country exceeds the presence of domestic banks. Out of the 26 banks, 14 and 12 are foreign and local banks, respectively.

Globally, many factors influence their entry into host countries. These factors have been identified as location-specific advantages of the host country (eg population size, security, market structure and regulatory structure), ownership-specific advantages of the foreign bank (eg branding, creditworthiness, size of clients, skilled work force) and internalization-specific advantage. These factors combined together influence the entry motive decisions, entry mode decisions, market orientation decision and management control decision of these banks. Thus, the entry into Ghana is influenced by these factors.

Their entry into Ghana dates back to the colonial era. The first entry was in 1896 by the Bank of British West Africa (BBWA), now known as Standard Chartered Bank (SCB). Its main object was to import silver coins from the Royal Mint to expatriate companies and the colonial administration. In the colonial era, the banking industry was established with the objective of providing financial services for the British trading enterprises and the British Colonial Administration. For these reasons, the local people in the Gold Coast were financially excluded from the banking system.

In 1917, another foreign branch was incorporated in the country. This is Barclays Bank, which was then known as Barclays Dominion, Colonial and Overseas Bank. This introduction increased the presence of foreign banks to two, with indigenous banks absent. In 1975, SSB Bank was also incorporated. Financial liberalization in the 80s and its deepening in the 90s saw the entry of new banks into the industry. From 1990-2000, four foreign banks entered the banking system, thus increasing the presence of foreign banks to seven. Unlike the previous years, seven news banks were incorporated from 2004 to 2010.

Regulating their entry is the responsibility of the Central Bank. Their entry modes into the country are through acquisition, subsidiary and joint venture. Before the issuance of banking license the following are legally required to be submitted by banks: 1. Draft by laws 2. Intended organizational chart 3. Financial projection for the first five years and area of ​​specialization intended. 4. Financial information on main potential shareholders 5. Background/experience of future directors and managers. 6. Sources of funds to be disbursed in the capitalization of new banks. 7. Market differentiation intended for the new bank. The license could be revoked by the central bank on the account of false, or misleading or inaccurate information by or on behalf of the applicant bank; noncompliance with terms and conditions stipulated in the license, and failure of the bank to commence business within one year from the date the license was issued.

Although their entry is imperative for a competitive banking, their excessive numbers could bring about macroeconomic instability and unstable legal framework. For these reasons, the Central Bank has adopted an open but selective licensing policy to regulate their entry.

In conclusion, entry of foreign banks in Ghana dates back to the colonial era. Time of entry varies from one bank to the other. Entry is selective and consciously managed. Entry modes are restricted to joint ventures, subsidiaries and acquisitions.



Source by Anoff Emmanuel

Leave a Comment

Your email address will not be published.