Annual financial reports posted by commercial banks in the country, indicate that foreign-owned banks have made profits in excess of 185.5 percent in 2020 compared to that made by indigenous banks, a development banking consultant, Dr. Richmond Atuahene, attributes to good corporate governance structures of the foreign banks.

Despite initial fears of the global pandemic impacting negatively on banks’ profits, figures from 19 banks out of overall 23 which have posted their financials at the March deadline show profit for the year (2020) of the industry hit more than GH¢4 billion compared to GH¢3.3 billion recorded for all banks in 2019 when there was no pandemic.

Out of the GH¢4 billion profit, GH¢2.97 billion came from the 13 foreign-owned banks that have published their financials. The only foreign bank yet to publish is Societe Generale, as our last check on Friday April 16, 2021 on its website showed the bank has still not published its 2020 annual report.

For the indigenous banks, our last check on the same aforementioned date, showed only six banks had published their financials, recording GH¢1.04 billion in profit for last year. The three other banks yet to publish their financials are United Merchant Bank (UMB), OMNIBSIC, and the National Investment Bank (NIB).

In terms of total assets, the 13 foreign banks recorded assets worth GH¢82 billion, whereas, the six local banks recorded assets worth GH¢51.3 billion, sending the total to GH¢133.3 billion for the year under review.

Commenting on the vast profit margin between foreign owned banks and that of indigenous banks, banking consultant, Dr. Richmond Atuahene, in an interview with the B&FT, said most foreign owned banks have very strong boards that ensure whatever risk decision their banks make comply with the International Financial Reporting Standards (IFRS) 9 requirements, making it impossible for the banks to enter into high-risk ventures which eventually affects profitability and asset quality.

“The reason for the good performance of the foreign banks is simply because their boards are in full control. They control where the money goes, who gets the money, how the risk is assessed and how the repayment is done. But if you come to the local banks, most boards are either not in full control of the bank or the people on the board may not have adequate knowledge about running a bank.

So when it comes to making risk decisions, the foreign banks are always ahead because of the quality and control of the board. The foreign banks go strictly according to IFRS 9 because their parent company and branches in other countries go strictly by that. But that is not what we see most often in the local banks. Most of them are not able to comply with the IFRS 9 requirements,” he said.

He added that another reason that affected the profitability of local banks is the fact that most of them have government contracts on their books and that takes times to pay back, whereas, the foreign-owned banks would rather prefer buying government bills and lending to private sector actors who have no affiliation with government contracts.

“If you do a critical review of the banks’ assets, you would realise that the foreign banks do not have many government contracts on their books because they don’t meet the IFRS 9 requirements. This is because the government contracts stay in the books for more than one year and the IFRS 9 will require it to be written off and that will impact on your profitability and asset quality.

They rather prefer to buy government bills and lending to the private sector which has nothing to do with government contracts. They have what they call strategic no-go-area,” he said.

To address this problem, Dr. Atuahene urged indigenous banks to pay more attention to their governance structures, especially in this pandemic period, as banks with competent boards are those which will perform better.

“The COVID-19 hit the local banks more because they were not religiously applying credit risk processes. Governance played a very key role. The foreign banks have a robust credit risk management and that is one reason they performed better than the local banks.

The set of people appointed to the boards of local banks must be people up and doing. In the foreign banks, it is the board which sets the strategic tone, whereas, in some local banks it is the managing director who sets the strategic tone. So the structure of governance in local banks must be improved,” he said.