Why Nigerian Banks are Thriving in Ghana Compared to Ghanaian Banks

In recent years, the banking landscape in Ghana has witnessed significant shifts, with Nigerian banks solidifying their presence and outperforming many Ghanaian banks. While Ghana’s banking sector has undergone transformative reforms, including the infamous banking clean-up exercise, Nigerian banks have not only weathered the storm but have emerged stronger. This raises critical questions: What are Nigerian banks doing right, and why are Ghanaian banks struggling to keep up? Let’s delve into an opinion report by Samuel Kwame Boadu, Founder & Digital Marketing Lead at SamBoad

The Banking Clean-Up and Its Impact

Between 2017 and 2019, Ghana’s banking sector experienced a major shake-up as part of the government’s effort to stabilize the financial system. The Bank of Ghana revoked the licenses of 23 insolvent banks, leading to the consolidation of several institutions. Prominent examples include the mergers that formed the Consolidated Bank Ghana (CBG), comprising five defunct banks, and the acquisition of UT Bank and Capital Bank by GCB Bank.

The clean-up revealed significant weaknesses within Ghanaian banks, including undercapitalization, poor corporate governance, and high levels of non-performing loans (NPLs). By contrast, no Nigerian bank operating in Ghana was forced to fold or merge, showcasing their resilience and sound financial practices.

Performance Metrics: Revenue and Profitability

In terms of financial performance, Nigerian banks in Ghana have consistently posted stronger results than their Ghanaian counterparts. For example:

• Access Bank Ghana, a subsidiary of Nigeria’s Access Bank, reported a profit of GHS 271 million in 2023, a 15% increase from the previous year.
• Zenith Bank Ghana, another Nigerian bank, achieved a net profit of GHS 300 million in 2023, making it one of the most profitable banks in Ghana.

On the other hand, major Ghanaian banks such as GCB Bank and CBG reported mixed results:

• GCB Bank recorded a net profit of GHS 252 million in 2023, reflecting slower growth due to high provisioning for bad loans.
• CBG, despite its significant market share, continues to grapple with integration challenges and legacy debts, posting marginal profits.

Performance Metrics Elaborated

In terms of financial performance, Nigerian banks in Ghana have consistently posted stronger results than their Ghanaian counterparts. For example:

Nigerian Banks

• Access Bank Ghana:
  • Revenue: GHS 1.2 billion in 2023
  • Net Profit: GHS 271 million in 2023, a 15% increase from the previous year.
  • Return on Equity (ROE): 18.5%
• Zenith Bank Ghana:
  • Revenue: GHS 1.5 billion in 2023
  • Net Profit: GHS 300 million in 2023, reflecting a 20% year-on-year growth.
  • ROE: 20.2%
• GTBank Ghana:
  • Revenue: GHS 1.1 billion in 2023
  • Net Profit: GHS 230 million, driven by robust loan recoveries and cost efficiency.

Ghanaian Banks

• GCB Bank:
  • Revenue: GHS 1.6 billion in 2023
  • Net Profit: GHS 252 million, reflecting slower growth due to high provisioning for bad loans.
  • ROE: 12.8%
• Consolidated Bank Ghana (CBG):
  • Revenue: GHS 1.4 billion in 2023
  • Net Profit: GHS 60 million, highlighting ongoing struggles with integration and legacy debts.
  • ROE: 4.2%
• Agricultural Development Bank (ADB):
  • Revenue: GHS 950 million in 2023
  • Net Profit: GHS 85 million, constrained by limited market penetration.

Comparative Analysis

While Ghanaian banks like GCB Bank lead in revenue generation, their profitability lags behind Nigerian counterparts due to higher operating costs, elevated NPL ratios, and less efficient risk management practices. For instance:

• The average NPL ratio for Ghanaian banks stands at 14.5% compared to 6.3% for Nigerian banks operating in Ghana.
• Nigerian banks have lower cost-to-income ratios, with Zenith Bank Ghana reporting 45%, while GCB Bank’s ratio exceeds 60%.

Market Value and Listings

One notable area where Nigerian banks outshine their Ghanaian peers is in stock market listings. Nigerian banks like Access Bank and GTBank are publicly listed, both in Ghana and Nigeria, offering transparency and access to capital. In contrast, most Ghanaian banks have struggled to meet the criteria for listing on the Ghana Stock Exchange (GSE), citing weak balance sheets and governance issues.

For example:

• The combined market capitalization of Nigerian-listed banks operating in Ghana exceeds $10 billion, reflecting their robust valuation and investor confidence.
• Conversely, the GSE’s financial sector index remains underwhelming, with only a few Ghanaian banks actively traded.

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Ownership and Strategic Leadership

Nigerian banks’ success can also be attributed to their ownership and leadership structures. Many Nigerian banks operating in Ghana are part of well-capitalized parent companies, providing them with access to resources, expertise, and risk management systems. For instance:

• Access Bank Ghana benefits from the backing of Access Bank Plc, one of Africa’s largest banks by assets.
• Zenith Bank Ghana leverages its parent company’s extensive regional network and technological innovations.

In contrast, many Ghanaian banks are locally owned with limited capital bases and less exposure to international best practices, leaving them vulnerable to economic shocks.

Why Nigerian Banks Are Thriving

1. Strong Capitalization: Nigerian banks entered the Ghanaian market with significant capital buffers, enabling them to meet regulatory requirements and fund growth initiatives.
2. Technological Innovation: Nigerian banks have invested heavily in digital banking platforms, attracting a younger, tech-savvy customer base.
3. Risk Management: Nigerian banks have robust risk assessment frameworks, minimizing exposure to bad loans and systemic risks.
4. Regional Expertise: With operations across Africa, Nigerian banks have developed a deep understanding of diverse markets, giving them a competitive edge.

Challenges Facing Ghanaian Banks

1. High Non-Performing Loans: The average NPL ratio in Ghana’s banking sector remains high at over 14%, compared to single-digit rates for many Nigerian banks.
2. Weak Governance: Poor management and governance lapses have undermined trust in some Ghanaian banks.
3. Limited Innovation: Ghanaian banks lag in adopting fintech solutions, which have become critical for customer retention and operational efficiency.
4. Regulatory Pressure: While the banking clean-up was necessary, it left many Ghanaian banks struggling to rebuild.

Are Ghanaian Banks Up to the Task?

The future of Ghanaian banks depends on their ability to adapt to the evolving financial landscape. Key steps include:

• Improving Capitalization: Ghanaian banks must attract more investment to strengthen their balance sheets.
• Enhancing Governance: Implementing stringent governance practices will boost confidence among stakeholders.
• Adopting Technology: Embracing digital transformation is critical for competing with Nigerian banks.
• Diversifying Services: Offering innovative products tailored to customer needs can drive growth.

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Brand Focus Africa’s Take:

Nigerian banks have set a high benchmark in Ghana’s banking sector through sound management, strong capitalization, and innovation. While Ghanaian banks face significant challenges, they also have opportunities to reclaim their position by learning from their Nigerian counterparts. The question remains: Will Ghanaian banks rise to the occasion, or will Nigerian banks continue to dominate?