Ghana’s financial services sector can be classified into three main categories i.e., banking, insurance and capital markets. The sector has shown significant development over the past decade.
The Ghana Stock Exchange (GSE) was set up on the 26 of November 1990 and has laid down rules and regulations for companies seeking to be listed on the Exchange.
The GSE operates under the rules and regulations of the Securities Industry Law 1993 (PNDCL 333) as amended.
The Securities and Exchange Commission (SEC) sets rules and laws to create level playing ground for Investors, Brokerage Firms and Listed Companies on the GSE. It serves to boost investor confidence and protect the investor on the Exchange. The SEC also sets laws for unit and mutual trust operators in the country.
Currently, there are 27 listed Companies, 10 brokerage firms, 5 mutual funds and 1 unit trust companies on the GSE.
The Bank of Ghana (BoG) Act 2002 (Act 612) has been replaced with the Banking Act 2004 (Act 673) to strengthen the regulatory and supervisory functions of BoG.
In February 2003, BoG formally introduced the Universal Banking Business Licence (UBBL), which is expected to bring more competition within the industry. To operate under the UBBL, existing banks must have a minimum net worth of ¢70billion (excluding statutory reserves), and new banks should have a paid-up capital of ¢70billion. Banks are required to hold 9% of the cedi and forex deposit base with BOG on daily basis as primary reserves and 35% of their deposit base in cedi denominated assets as secondary reserves.
The Government of Ghana Index-Linked Bonds (GGILBs) was introduced in 2001, which as part of the reserve requirements converted Government of Ghana (GoG) short-term liabilities into long-term loans. BoG requires banks to hold 15% of their total deposits in GGILBs. The GGILB is now being phased out by the new 2nd and 3rd year fixed or floating bonds.
Currently, there are 19 banks operating in the formal banking sector under different banking licenses with Standard Trust Bank Limited being the latest addition.
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The Ghanaian insurance market is a thriving one with huge potential for growth in both the life and non-life markets. The competition is however keen in the Life market as a result of the anticipated passage of the new insurance bill which will require the separation of Life and Non-Life businesses and an increase in the capital requirement to ¢7billion.
The Ghanaian market continues to demonstrate some unique characteristics such as:
Product development continues to be concentrated on the core property/casualty market and insurers are constantly seeking to identify alternative solutions for clients whose needs are not being addressed.
The challenges facing the industry includes the under pricing of policies and the worsening position of bad debts which has resulted in most insurance companies making significant underwriting losses.
The need for insurance firms to spread their risks in order to reduce the impact of risk during any catastrophe led to the creation of the Ghana Reinsurance Company, which is mandated to receive legal cession 20% of premium as reinsurance.
The future of the insurance market looks bright especially with the anticipated introduction of a common currency for the West African Common currency coming into effect on 1 July 2005. This will provide great opportunities for companies to explore into the neighbouring countries.
PwC has provided and continues to provide professional services to the market leaders in the Financial Services Sector.
Country Senior Partner, PwC Ghana
Tel: +233 (0) 302 761500