Average interest rate on deposits drops marginally in June

average interest drops

The average interest offered by banks on customer deposits dropped by 2.67 percent between May and June 2017. According to the latest Annual Percentage Rates (APR) and Average Interest (AI) report by the Bank of Ghana, the figure declined from 11.2 to 10.9 percent within the one month period.

Although its rate has dropped marginally, Omnibank still offers the highest interest rates on customer deposits at 17.3 percent. It is immediately followed at the 2nd and 3rd position, by Bank of Baroda and the Royal Bank with 15.4 and 14.7 percent respectively.

The 4th and 5th positions are occupied by Stanbic Bank and First Atlantic Bank, with interests on customer deposits at 14.1 and 13.8 percent respectively. They are followed by the United Bank for Africa and GN Bank which occupy the 6th and 7th positions, with their interests at 13.6 percent and 13.3 percent.

At the 8th, 9th,   10th and 11th positions are Bank of Africa, Capital Bank, Unibank, UT Bank and Zenith Bank, with interests on deposits at 13.0, 12.6, 11.6 and 11.5 percent in that order.

Also, with 11.4, 11.1, 10.9 and 10.5 percent, HFC Bank, National Investment Bank, First National Bank, FBN Bank, Prudential Bank and Sovereign Bank occupy the 12th, 13th 14th and 15th positions in that order.

Barclays Bank and Fidelity Bank occupy the 16th and 17th position with 10.4 and 10.0 percent respectively.

Furthermore, Access Bank, Societe General, and Heritage Bank take the 18th, 19th and 20th slots with interests on customer deposits at 9.8, 9.7 and 9.6 percent in that order.

Ecobank, ADB Bank, BSIC, Cal Bank and GCB Bank placed 21st, 22nd, 23rd, 24th and 25th with 9.2, 9.1, 9.0, 8.7 and 7.6 percent in that order.

Occupying the 26th and 27th positions are Guaranty Trust Bank and Standard Chartered Bank with 7.4, and 5.9 percent on customers’ deposits.

The 28th position is filled by Energy Bank with 5.7 percent interest on customers’ deposits.

In all, thirty two banks offer an average interest of 10.9 percent on customers’ deposits, according to the Bank of Ghana.

 

Credit: citibusinessnews.com

Mergers and Acquisition phobia: The bane of Ghanaian businesses

Mergers and Acquisition

In Ghana, and in most developing countries, there is no denying the fact that Small and Medium-scale enterprises play major roles in the growth of their economies. Some SMEs have been able to withstand the shocks associated with their establishing and been able to sustain themselves, hence, making great strides and contributions to their countries’ socio-economic environment.

However, majority of these enterprises have not been able to survive beyond three or five years (according to research) upon their establishment; and those which have existed beyond these initial difficult periods still face serious problems for so many reasons; the major ones being lack of adequate capital and funds for various aspects of their running, lack of managerial expertise and most of all not believing in themselves in facing the competitive environment in which they operate.

It is, for these reasons that those which have been able to hold their good grounds and have faced the harsh competitive environment squarely should be helped to grow further; and at the same time, also, seeing to it that even the well grounded and comparatively bigger firms are assisted to become world-classed establishments which can face the global competition. It is as a result of these that Mergers and Acquisitions come into play and, hence, the promoting of such exercises or needs.

This write-up, therefore, seeks to bring to the fore the need to apply the concept of Mergers & Acquisitions (M&A) to help the further growth of these small and medium-sized establishments and, even, the well-grounded “not-all-that-big” companies — which cannot match the current competitive global markets.

We begin this discussion with:

What Are Mergers and Acquisitions?

Mergers and acquisitions are both changes in control of companies that involve combining the operations of multiple entities into a single company.

In a merger, two companies agree to combine their operations into a single entity or company. One or more companies may merge with an existing company or they may merge to form a new company. In a merger, there is a complete amalgamation of the assets and liabilities as well as shareholders’ interests and businesses of the merging companies. There is yet another mode of merger. Here, one company may purchase another company without giving proportionate ownership to the shareholders of the acquired or without continuing the business of the acquired company.

Now, let me quickly state the forms of merger.

There are three types of mergers: The Horizontal, the Vertical, and the Conglomerate.

The horizontal is the combination of two or more firms in similar type of production or rendering similar services, for example, combining two banks or two insurance companies. In Ghana, the recent ones between Ecobank Ghana and The Trust Bank; and the Fidelity and ProCredit Savings & Loans are vivid examples.

The vertical is a combination of two or more firms involved in different stages of production or services, for example, a vehicle manufacturing or assembling company and a vehicle marketing company. When a company combines with a supplier of material, it is called backward merger and when it combines with the customer, it is known as forward merger.

A conglomerate merger is when a combination of firms engaged in unrelated lines of business activity occurs. Examples are merging of different businesses such as car manufacturing and cement manufacturing, a bank or an insurance company.

In an acquisition, one company purchases another company, and has the right to sell off operations, merge them into similar groups in the purchasing company, close facilities or cancel products altogether.

A fundamental characteristic of merger (either through absorption or consolidation) is that the acquiring or amalgamated company (existing or new) takes over the ownership of the other company and combines its operations with its own operations. Acquisition may be defined as an act of acquiring effective control over assets or management of a company by another company without any combination of businesses or companies. A substantial acquisition then occurs when an acquiring firm acquires substantial or bigger quantity of the shares or voting rights of the target company. Thus, in an acquisition, two or more companies may remain independent, separate legal entity, but there may be change in control of companies. An acquirer may be a company or person(s) acting in concert with that act together for the purpose of substantial acquisition of shares or voting rights or gaining control over the target company. Recent cases in Ghana are the ones that have occurred between Dannex Pharmaceuticals and Starwin Products Ltd. (SPL); MET Insurance and Hollard of South Africa, and the Republic Bank of Trinidad & Tobago versus the HFC Bank.

Why Merge?

Companies would choose to merge together for different reasons:

  • The combined entity would be larger, and have corresponding larger resources for marketing, product expansion, and obtaining financing. This could help them better compete in the marketplace.
  • The combined entity could merge similar operations to reduce costs. Corporate and administrative functions, such as human resources and marketing, are often targets for combinations. They might also combine the production areas if the companies produce similar products and reduce costs by having fewer plants or facilities in operation.
  • The combined entity might have less competition in the marketplace. If the products of the two companies competed for customers, they could combine their offerings and use resources for improving the product, rather than marketing against each other.

The combined entity might have synergy in operations. Synergy is when combined operations show lower costs or higher profits than would be expected by just adding their financial information together on paper. This could be due to economies of scale, where costs are lower due to higher volume of production, or due to vertical integration, where greater control over the production process is achieved due to owning more steps in the production process.

Why Acquire?

Acquisitions are undertaken for strategic reasons. For example:

  • A company might acquire another company to obtain a specific product. It can be less expensive to purchase a company offering a product you’d like to sell than building the product yourself. Software companies often purchase smaller companies that offer extensions to their product line if they become popular with customers, so they can add the functionality to their primary offering.
  • A company might acquire other companies to increase its size. A larger company may have more visibility in the marketplace, and also better access to credit and other resources.
  • A company might acquire another to obtain control over a critical resource. For example, a jewelry company might acquire a gold mine, to ensure they have access to gold without market price fluctuations.

Types of Business Combination

 To further explain, there is, however, a great deal of confusion and disagreement regarding the precise meaning of terms relating to business combination viz., merger, acquisition, takeover, amalgamation and consolidation. Sometimes, these terms are used in broad sense, encompassing most dimensions of business combination, while sometimes they are defined in a restricted legal sense.

Merger or amalgamation may take two forms:

  • Merger through absorption
  • Merger through consolidation

Absorption is a combination of two or more companies into an existing company.

All companies, except one lose their identity in a merger through absorption; a term normally given this is “swallow”, thus one company swallowing the other or others. A typical example, in Ghana, is when the then Social Security Bank (SSB), in 1994, swallowed the National Savings and Credit Bank (NSCB), an exercise which was consummated by Databank Ltd. – an investment bank.

Here, let me point out that similar exercises were going to come on between the then Bank for Housing & Construction (BHC) and the National Investment Bank (NIB); the Agricultural Development Bank (ADB) and the former Cooperative Bank but for the confusing and difficulty which characterized the first of such exercises between the SSB and NSCB led the then government to shelve or abandon the subsequent ones.

Consolidation is also a combination of two or more companies into a new company. In this form of merger, all companies are legally dissolved and a new entity is created. In a consolidation, the acquired company transfers its assets, liabilities and shares to the new company for cash or exchange of shares. In a narrow sense, the term amalgamation and consolidation are sometimes used interchangeably.

Benefits of a Merger or Acquisition

There are many good reasons for growing your business through an acquisition or merger. These include:

  1. Obtaining quality staff or additional skills, knowledge of your industry or sector and other business intelligence. For instance, a business with good management and process systems will be useful to a buyer who wants to improve their own. Ideally, the business you choose should have systems that complement your own and that will adapt to running a larger business.
  2. Accessing funds or valuable assets for new development. Better production or distribution facilities are often less expensive to buy than to build. Look for target businesses that are only marginally profitable and have large unused capacity which can be bought at a small premium to net asset value.
  3. Your business underperforming. For example, if you are struggling with regional or national growth it may well be less expensive to buy an existing business than to expand internally.
  4. Accessing a wider customer base and increasing your market share. Your target business may have distribution channels and systems you can use for your own offers.
  5. Diversification of the products, services and long-term prospects of your business. A target business may be able to offer you products or services which you can sell through your own distribution channels.
  6. Reducing your costs and overheads through shared marketing budgets, increased purchasing power and lower costs.
  7. Reducing competition. Buying up new intellectual property, products or services may be cheaper than developing these yourself.
  8. Organic growth, i.e. the existing business plan for growth, needs to be accelerated. Businesses in the same sector or location can combine resources to reduce costs, eliminate duplicated facilities or departments and increase revenue.

Mergers and Acquisitions are also beneficial

  • When a firm wants to enter a new market
  • When a firm wants to introduce new products through research and development
  • When a forms wants achieve administrative benefits
  • To increased market share
  • To lower cost of operation and/or production
  • To gain higher competitiveness
  • For industry know how and positioning
  • For Financial leveraging
  • To improve profitability and Earnings Per Share

Issues in Combining Companies

It can be difficult to combine companies, whether they are merging or one is acquiring the other.

Combining operations means that some people will lose their jobs, since the company might only need, say, one Director of Human Resources but they have two currently available.

Companies may have different systems for managing information (MIS), including production information, financial information, and even communications, such as email systems. There can be a significant effort required to merge the systems into a single system, in order to take advantage of the synergies of combined operations.

Companies may have very different cultures, and be unable to work together.

But surely, from the above, it must be seen that the benefits that accrue to mergers and acquisitions far outweigh the non-benefits or disadvantages.

And, be aware that teething troubles or problems arising out of such exercises can be resolved with time and with dedication. There is nothing that is insurmountable.

Calling for mergers and acquisitions

Banks, insurance companies, small and medium-scale enterprises (SMEs), law chambers, accounting firms and other scattered small businesses in Ghana should begin to think of such merging and acquisitioning to have big roots for competing with others globally.

Thirty three (33) Banks, and about twenty-seven (27, as at June, 2015) Savings & Loans companies, and an uncountable number of Rural & Community Banks, Microfinance institutions and Credit Unions are just too many for our country, Ghana, with a comparatively smaller adult population, (at least with South Africa). It is in the light of this that the Central Bank (BoG) should do EVERYTHING within its power to ‘force’ some of these financial establishments to merge so that they can have bigger capital bases to rock shoulders with other bigger institutions in Africa and the world over. I will, therefore, call on the apex bodies of the various sectors of the “SocioEconomic” groupings in the country like the Association of Ghana Industries (AGI); the GHAMFIN and GAMC, (both for the microfinance companies); the GHASALC (for Savings & Loans companies); the Credit Unions Association (CUA Ltd.); the Ghana Bankers Association; the Apex Bank and ARB (both for the Rural & Community Banks); the Private Enterprise Federation(PEF); the Ghana Insurance Association (GIA) and the many others, to encourage their members to see the benefits of mergers and acquisitions that would accrue to them should they take advantage and pursue such exercises; for it is true a statement that “Two or more heads are always better than one”, in terms of management; and, again, leading to enhanced capital growth for creating bigger establishments. Indeed, these apex bodies mentioned must be seen as the first step in the promotion of the formation of bigger enterprises; and, the second step, prompting their members to consolidate.

Ghanaian businessmen and women DO NOT trust each other and therefore the lack of such collaborations.

Let Ghanaian business owners trust each other and imbue themselves with Honesty, Integrity and Truthfulness – MIND YOU!!, BUSINESS THRIVES ONLY ON THESE THREE PILLARS; and much more be involved in ethical business conduct for it is only with these qualities that they will have the vim to enter into mergers and acquisitions for the resultant bigger and sustainable businesses of international repute, which will be good for their own selves and for the good of the economy of Ghana.

Let the “business world” in this country challenge themselves with this thought, and they wouldn’t regret it. They will, rather, find their combined forces sending them to greater heights and hence moving from glory to glory. Their businesses will be well positioned for continued and sustainable success.

 

Credit: Sam Bediako-Asante

The writer, Sam Bediako-Asante, is the CEO of Sambed Consult, a business & investment advisory firm. He is also a former banker, a professional administrator, and presently, a certified and an accredited SA Specialist of the South African tourism in Ghana. He can be reached on +233 27 7518634  or  email: sambed33@gmail.com

Article: Your savings account not an investment account

Savings _sikasem

Savings consists of the amount left over when the cost of a person’s consumer expenditure is subtracted from the amount of disposable income he earns in a given period of time, according to Keynesian economics, as quoted by Investopedia.

The amount left over is sometimes left in the bank account over a period of time, sometimes over a year.

A recent report published by the Bank of Ghana (BOG) shows Commercial banks in Ghana pay between 3.4% to 16.40% as interest on deposits (savings); an average of 11.20% by all the banks. Click here for full Bank of Ghana Report on the rates.

There are some bank customers who are unaware or careless about these rates and are even happy by just seeing their monies remain in their accounts. However, there are others who complain of receiving minimal interest on their savings while others complain of not receiving at all. The banks are then happier keeping customers’savings with them. In fact, if it tends to span over a long period, banks go the extra mile by offering customers exceptional services such as assigning personal relationship managers.

The BOG report is to guide customers in making decisions regarding their savings/deposits/leftovers and what is being earned on them.

Let’s delve into some reasons people open bank accounts:

  • For Accessibility: To be able to make regular withdrawals during business hours. This is why Banks offer 24/7 ATM service and others for this purpose.
  • For EmergencyPurposes: Money is put aside to cover emergencies. For instance, an unexpected car repair, friends and family requests, loss of job, are supposed to be catered for by emergency funds
  • Savings for Retirement: The earlier this begins, the less the requirement in future. In the period in life when one cannot engage in full time employment, it is necessary that a retirement fund works for you.
  • Saving to make a down payment for House, Car: People save to use as down payment for such facilities. This also provides an avenue for accessing loans. With banks,a better rate could be negotiated if the customer is able to provide a percentage of the cost of the product.
  • Savings to have fun: Another reason to save is to afford the luxury of a vacation.
  • Save for Sinking Funds: Sinking funds are set aside for improvements on car, house and other possessions. This fund can free the emergency fund.
  • To earn interest: The opportunity to earn an interest of “3.4%” is always better than keeping the money under your pillow.
  • Savings for education: Additionally, people save for future education. Masters and doctorates can be achieved by taking the first steps of savings.Children’s education is also a factor to save money.

From the reasons above, it can be noted that apart from savings for accessibility, funds for the other reasons are likely to be kept for up to a year or more. In this case, the left overs.

It is necessary to fish out good returns in order not to lose money, especially to inflation. Therefore, it is better to invest the money.

Again, according to Investopedia, an investment is an asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will be sold at a higher price for a profit.

From the rates published by the BOG, the rates quoted are mostly lower than inflation rates, pointing to loss of purchasing power in real terms.

None of the rates also match up with rates offered by investment firms in the country, making it risky to save money over a long period in a bank account.

Treasury bills, for example, have over the period offered savers/investors cushion on inflation.

Savings _Tbill return

Real return over the years on the 91 day Treasury Bills, though not very impressive, has provided the necessary cushion to protect the purchasing power of investors.

From the graph above, since 2006 to 2016, it is realized that though real return is quiet slim, it’s still better than negative.

The Ghana Stock Market is also an avenue that gives appreciable returns.

Savings _stocks return

Unilever Ghana Ltd, Enterprise Group Ltd, Ecobank Ghana Ltd, Fan Milk Ltd, Benso Oil Plantation Ltd, GOIL and GCB Bank are a few selections of companies listed on the Ghana Stock Exchange that have returned appreciably to investors. An average of 13.65% inflation rate is far below the average return of the seven stocks of 258%, when funds were kept from 2007 to 2016.

Bank savings accounts are not investment accounts. Opening bank accounts should not be the prime motive; how much we earn on our monies should also be of concern to us.

 

Credit: Kofi Busia Kyei (Financial Analyst)

Source: citibusinessnews.com