Ghana Banking Sector: CAL Bank | 6th Most Profitable Bank in Ghana

Interview with Frank Brako Adu Jnr, Managing Director of CAL Bank

There are about 28 banks in Ghana and this number has been growing a lot in recent years. Deposits and lending have been continually growing, there are about 2 million accounts open in the country and some people have more than one account. There are over 20 million people living in Ghana so there are a huge number of people that are not in the traditional banking sector. What is your assessment of the banking sector in Ghana? What do you think will be the trends in the next 3 years?

I think the banking sector will be more responsive to the needs of the people. The way that the banking sector itself has been positioned by government has not endeared the banking sector to the populace nor made it very available to the populace. The banks have not necessarily been included in government programs and policies, which is probably due to the evolution of banking in this country.

Until 1990 every bank in this country was basically owned by the government, so the banks were an appendage of the government. Governments do what governments want to do and other government appendages follow suit and this legacy has continued. You should have a situation where the government engages the banks prior to a program or even to a national budget strategy meeting. Government does what it has to do and the banks are supposed to do what they are supposed to do but that does not necessarily bring banking into the fold. We are not even seen as economic aggregators or facilitators, we are seen as institutions that should provide funding, that’s all. For example if there is a tax shortfall they think to just go to the banks and tax them some more. I don’t think they really understand the essence of those actions.

In my opinion I think the banks will continue doing what they are doing, it is in our interest to have more inclusiveness, to have 5 million people open accounts as opposed to the 2 million you mentioned, or even to have 15 million people open accounts.

The question must be asked: why are they not opening accounts? You cannot blame it necessarily on the banks, because if you have a system that is lax in terms of tax accountability for instance, people are not going to have bank accounts. If you have a system that lacks a national ID then people are not going to open bank accounts. Given the chance, most people will want to do a transaction in cash and under the table where you don’t have to pay taxes, etc. In the more developed economies where taxes are developed, people migrate to paying cash where they can. Government has a role to play if you want a situation where the banks would have more people open bank accounts and deal with the banking sector.

We met with XDSData, their product allows people to be more known with IDs and credit referencing, etc. Do you think this applies to what you are talking about?

XDSData plays a critical role because they are a credit referencing bureau but they are not going to add to the body of knowledge that is absent. We have to understand as a society that several things are prerequisites. Even as government you must for statistical purposes and planning be able to capture your populace, if you cannot do this how will you provide any services? That is what is lacking. I think that government fails to understand that they are so consumed by other things like politics that they don’t focus on the basic requirements that would make governance, planning, strategy formulation, etc., much easier.

Maybe that is something that comes from your Anglo heritage? When you go to the francophone countries, everyone is registered when they are born.

When you go to England everybody has a National Insurance number.

Yes, but they don’t have an ID.

Yes, but the National Insurance number is enough. Here you have 7.5 million voters, so all of them have voters ID cards. Why can’t that be a starting point? Then you have national health insurance, most people have national health insurance cards but these cards don’t connect to the voters ID card. Then you also have some variety of national ID, drivers’ licenses, etc. It shows you the inefficiency. Why can’t the government simply see how important this is and integrate it all to build up a database? The more people you get into this database the wider you open the tax net as opposed to continually taxing the same people all the time. That is a form of institutional laziness.

Another aspect is that the bonds issued by the government are quite interesting for the banks, so why lend to SMEs and companies while you can comfortably get some revenue out of the government bonds?

Well I think that we very well could do that but I think the banks want to do a little bit more than just government bonds. Obviously the risks on the open industry are higher however I think the returns are also higher. There is ancillary income when you make a loan to a client or a commercial entity and there is also trade finance income, deposits, transfer income, etc. But when you buy a T-bill you make T-bill interest and that is it. I listen to social commentators, economists, etc., unfortunately these days historians have become biased or politicised, economists have become politicised and social commentators have become influenced etc., so you don’t know what the real situation is. I think that the banks still have the capacity to do more for commerce and industry in the private sector irrespective of government borrowing.

Let’s look at CAL Bank and what you do particularly in the private sector.

CAL Bank has always been and will always be a totally private sector bank. CAL Bank has little or no government deposits. CAL Bank has built its balance sheet to place it as the 6th or 7th largest bank in the country purely on private sector support. We do work for the government but we basically run syndications for government. The majority of our book is in the private sector. We have great influence in the downstream oil sector; we have influence in the communications sector, mining and real estate. We avoid road construction because it is directly linked to government and there have been too many difficulties with payments. The government’s payment history is not very good, they do eventually pay but in the meantime the client goes broke so we avoid working on this. We have become a well-known brand on the market. Our interventions in the private sector have been significant.

We also are the 6th most profitable bank, the only banks that make more money than us are the multinationals and the government funded GCB. We are a medium tier bank, but we seek to get into the top tier and I know that we can. We have a very good franchise, we need to grow our customer base and make significant inroads into other areas and industries where originally banks like ours wouldn’t be able to play a part, for instance in downstream oil. We have done significant oil transactions, significant real estate transactions and significant infrastructure transactions for government in water, etc. We are very upbeat about CAL Bank. I think that there are a bunch of young people here that are very motivated.

From a customer point of view, why would they choose to bank with you?

I think the market is not segmented. The products are the same so the difference is in the ease of access, speed of delivery and customer experience. If I walk into a bank and I get what I want but I am not treated well then I am not going to go back. I think that customer service is a very key thing for CAL Bank; customers come to us and want to return and also refer other customers to us. Whilst there is hardly any product differentiation or market segmentation, we have to make sure that if you walk into CAL Bank and do business with us, you would leave and want to come back because we have delighted you.

What are the areas that you want to continue and grow more?

Without a doubt, I would say retail and SMEs. We evolved as a corporate bank; but the thing is that SME is not just a fad; it is key and retail even more so because at least statistically we have become a middle income country. In reality we are also developing other areas. The middle income class is growing. When I started working here 23 years ago as a 28 year old, my desire was to have one car and one house if I could, the young guys working here today at the age of 35 want to have 2 or 3 houses because they can afford it. They can afford a mortgage; they want to have 2 cars. This desire is replicated across the entire spectrum of Ghanaian society. So you must have retail products because it is the middle income people who spend. You cannot focus on corporates and SMEs and forget about the individuals because they will evolve, they will get credit cards, etc. You must have those products and attach them to the retail sector. We have evolved a very vibrant mortgage book, we are one off the few banks offering mortgages to individuals, we give up to 15 year mortgages that most banks won’t do.

That means you are going to get into a segment where all the banks are already quite well established?

No. The thing about the retail sector is that there are no structures yet. The government must understand this. I was called to a group meeting with the Minister of Finance a couple of days ago and I asked a very simple question: “do we have a program from government which is blanketing this country with fibre optic cable?” because that is a no brainer if you want to develop today. You must have internet access capability and data transfer capability. This is no longer a luxury.

Vodafone are the ones that are supposed to be doing that.

All of them have been doing it. Vodafone is doing the main projects. Several companies have put transatlantic pipes on the shores. Even if Vodafone is doing it, a purposeful government must have a program and it must be known that in the next 3 years they are going to spend 200 million dollars to blanket the country with fibre optic cable for data transfer, etc., to be at your fingertips. With that you can do all manner of things. With certain structures in place such as a national ID, everything can be done. I wouldn’t have to get up from here to go to Pada to register someone because it can be done electronically and remotely. Now I have heard that it is being done but I think that it can be done faster.

And you want to leap frog?

The advantage of being in a developing country is that you don’t have to reinvent the wheel. Somebody has done the hard work already and you just have to select what will work for you, modify it if necessary and implement it.

And you as a bank can learn from the others because you don’t need a huge network of branches, you can use technology but you need a backbone. In terms of mobile operators for example you can’t say that you are in a bad situation because there are 6 mobile operators…

I would disagree with you there and purposefully so. We can have 15 mobile operators but when I take my cell phone and I make a call which doesn’t go through we might as well have just half an operator. Do you understand? When I get off the plane in Kumasi from Accra and I switch on my phone, for 48 hours I don’t have any signal. I think that what Sierra Leone has done is a good idea; they have issued a directive to one of the mobile operators, I don’t want to mention them but they have given them 2 weeks to clean up their system and improve call success rate or else they will revoke their license.

Another issue is that the whole country is implementing infrastructure and so they are digging everywhere and are of course affecting cables all over the country.

If I am a paying customer I don’t want excuses. If you want to come into my bank for a service it doesn’t matter if my system is up and running or not, you want to be served and not given an excuse. If you know that you are going to dig up your cables then give me a parallel line, don’t come here and tell me that you are digging up the cables so you can’t provide the service but will still be charging me. You are taking money from me; I have paid ahead and want to use the service today, not in three days.

Where we have to agree is that the whole country is lagging behind in terms of infrastructural development. Ghana has been growing incredibly but the infrastructure is not up to par.

Then who should we blame? You tell me?

The government.

Yes, the government and the politicians.

Do you see a difference in the political parties?

There is no difference. I think that when the politicians start to understand that it is not all about them but that it is about the country and the people, things will change straight away. All politicians in this country think that it is about them because they politicise every single thing, even where there is no politics, that is what in their own words ‘makes them relevant’. When they begin to understand that they were voted into office to serve the people, then they will begin to make a difference. As far as I am concerned, right now they are not making a difference. As far as I am concerned only 2 heads of state in this country have made a difference: Kwame Nkrumah and Kutu Acheampong.

Do you think Ghana is doing better or worse than the other countries in the region?

Why must I compare myself to one-eyed people when I can compare myself to two-eyed people? I don’t want to compare myself to Guinea Bissau or Togo.

Who would you like to compare yourself to?

Well right now I can compare Ghana to Portugal or Greece, or any other of the other European countries that are facing challenges. I don’t want to compare our country to any country; I just think that we can do much, much better.

Now to return to CAL Bank, how does this bank work internationally?

From a shareholding point of view, a fairly large part of our shareholders are foreign. From an operational point of view, a lot of our business is cross border, international trade. We have significant relationships with about 14 international banks, between them we have about 400 million dollars in trade lines which we use for our international trade. We do a significant amount of international trade; we could do 100 to 200 million dollars’ worth of oil imports in a month. We have lots of PE funds, private equity funds as shareholders. We also borrow significantly on a medium to long term basis from a number of developmental finance institutions. We have borrowed from Proparco from France, the DEG from Germany, the African Development Bank and we have had some loans from the IFC that we have now paid off. At the moment we are negotiating a little over 142 million dollars in medium term loans.

Is that something that you want to push or increase? What is your strategy on that level?

Absolutely. Our intention is to push into the first tier. If we look at the banks in the first tier, you have Standard Chartered Bank which is based in England and would facilitate all the international transactions, the same for Barclays, Stanbic would do the same, Ecobank has ETI, etc. They all have international relations. So if I want to dislodge any of these I have to make sure I can compete and punch above my weight. The only way I can do that is to grow my international tentacles and my international relationships. 2 years ago our total lines were around 75 million, last year they were 230 million, this year the plan was for 400 million by December but we are already at 400 million and next year we are supposed to do something like 750 million. Therefore if we follow this trend, we are talking 2.5 billion dollars’ worth of transactions in international trade. That is how we seek to grow. We are actually very aggressive when it comes to pushing international relationships. We have very active relationships in the Middle East as well.

How do you push that?

It is a lot of leg work, a lot of travel, a lot of negotiations and eating funny food! It involves seeing interesting customs as it is all about relationships. There is a lot of air travel. There are about 4 of us who do this actively but it is mostly me.

What are the major challenges that CAL Bank faces? What keeps you awake at night?

The cost of funds. We have a high cost of funds. If we could half our cost of funds we would probably be the third most profitable bank in this country. Our costs of funds are high because as I said we have corporate customers, and they don’t leave you with free funds, they have treasurers who negotiate for every penny they leave with you. My cost of funds is significantly higher than any of the banks in the top tier. The challenge is not NPLs, our NPL ratio is 6 to 6.5% and the market average is around 13 or 14%, so that is not what is keeping me awake at night, what keeps me awake is cost of funds and liquidity. The top 6 banks don’t have this issue. They have been around long enough so they have very cheap funds and a solid base of retail deposits that we don’t have, but with time as we grow our branch network we should be able to. If we could drop our interest/expenses ratio by 50% trust me we could be the third most profitable bank. That is our major concern right now.

What is your strategy to overcome this?

The strategy is to have a branch network in retail high density areas and also to try to get a lot more retail customers. We need that because we are also a very technology driven bank, in terms of bandwidth I have asked that we go directly to one of the transatlantic suppliers and get an E1 pipe, I am tired of this 256Kbps whatever it is, it is not working for me. I want to pay for an E1 pipe dedicated to CAL Bank. We need the micro connections put in place by the government or whoever is responsible in the country.

How do you see Ghana in 5 years’ time?

It is a tough question because of the importance of the politicians in that equation. If we have the right set of politicians who want to do the right thing, this country can only improve. If we get the wrong set of politicians who only think about themselves then we will not get anywhere. I have been thinking about it a lot, I think that the private sector will always survive in spite of the posturing of the politicians because it is the nature of the private sector. It is made to survive, it will find ways and means of survival, but it can blossom and thrive in the right environment.

Ghana is a peaceful country, it is not like other places.

I agree with you to a certain extent but let me tell you something, I think we take undue advantage of this so-called peaceful country. When people cannot afford medical care it is not peaceful. The fact that we don’t take up sticks and stones at each other in the streets doesn’t make it peaceful. When I was in hospital the person lying next to me could not afford the medication that she required so the hospital opted to give her a lesser medication which obviously wouldn’t cure her. What system is that? If you have a hundred thousand unemployed graduates forming an unemployed graduate association then that is not a peaceful situation. The Arab spring was born from an unemployed 22 year old graduate, so we could be sitting on a time bomb here, and the politicians must understand that. When someone is hungry at some point they become like a wild animal, and will do anything to feed, that is extreme provocation and it is caused wilfully by the politicians because they refuse to govern properly. I have never been an advocate of demonstrations. When I was in university I never went on one, I actually went round advocating against it. But today I think why shouldn’t doctors demonstrate if they don’t get paid? We all see the waste done by government; we all see the unbridled expenditures of government that they refuse to control. We all see the theft that goes on in all judgement debt, etc. If you can pay a judgement debt of 40 to 60 million cedis, why can’t you find 30 million to pay the doctors?

So today in my more mature years, when I shouldn’t be thinking this way, I am saying that the inequality and inequity is too much, and the politicians and those in government must be held accountable because they cannot sit there and continue to mal-govern when people continue to suffer. I say that because I pay taxes and they are seeking to tax the bank some more. So we will pay the taxes, but they must use the money wisely.

What kind of role do you think Ghana could play internationally?

I think that Ghana has a lot going for it, and until Nelson Mandela came along I think that the iconic figure in Africa in many ways was Kwame Nkrumah who fought for our independence. Ghana was the first country in black Africa to have independence and now we have a stable country. We are peaceful people; we change governments through the ballot box, etc. We have had heads of state in the past who have been men of stature. Kofi Annan’s role at the UN has also helped. It all depends on whether or not we get it right internally, if we do I think there will be a lot of respect for Ghanaians and Ghana itself in the international community in all fields – sports and politics, etc. I think that Ghana’s role in the international community can be significant.