Graphic Business News

It’s more profitable to own bank than buy shares — New report

By: Maclean Kwofi
Category:
Dr Sajid Chaudhry of the University of Birmingham

 

UNLIKE other countries where the stock market is the safe haven for investors, in Ghana, owning a bank is considered the most profitable business to invest in.

Ghana’s banking sector is also more profitable than Australia’s, which hosts the world’s largest banking sector.

A new report by a lecturer at the University of Birmingham, UK, Dr Sajid Chaudhry, arrived at these conclusions after reviewing the profit and loss (P&L) accounts of the country’s top six banks and comparing the results with their peers in Australia and three other African countries.

The report also compared return on equity (RoE) in the banking sector to returns on shares and arrived at the conclusion that investing in banks returned more profit than buying shares in Ghana.

Report findings 

Presenting the findings of the report in Accra on September 24, Dr Chaudhry said an investor who establishes a bank in the country needs approximately one-and-half years to recoup his/her investments because of the profitable nature of the sector in Ghana.

The profit, he explained, could be made over the period without additional capital from the owners or shareholders. 

“Now, when an individual or group of people decide to start a bank in Ghana, it will take only less than one and half years for the investment injected to be returned and the rest of the years is basically for profit,” he said.

The report, dubbed: ‘Taxing profits of banks in Ghana,’ is co-authored by Dr Chaudhry and Prof. Andy Mullineux, also from the University of Birmingham, UK.

However, the irony is that, while the big banks were making huge sums of profit, small banks were worse off, due to the competitive operating environment. 

The financial expert noted that the big banks were engaging in unfair competition to the detriment of their smaller competitors.

As a result, the authors advised the Bank of Ghana and the government to implement measures that will create a level playing field for all banks to operate.

Huge profits 

The report showed that the profit of the six biggest banks in the country totalled GH¢4.9 billion, equivalent to 2.38 per cent of the national economic output, measured by gross domestic product (GDP).

The report also showed that the monopoly profit of six big banks – the GCB, Ecobank, Barclays, Fidelity, Stanbic, and Standard Chartered banks – is more than half of total tax generated by the country from goods and services.

Not only does the profit of the banks equate to 227 per cent of the tax proceeds made from fuel, but Dr Chaudhry said: “The profit of these banks is even higher than the Australian banking industry which is the most profitable banking industry in the world.”

Recommendations

Subsequently, Dr Chaudhry made a strong case for the banks to be taxed extra because they make enormous profits at the expense of the public. 

He explained that given the level of profits the big banks make in Ghana, BoG should consider introducing a tax rate of one per cent on total liabilities net of equity and insured deposits or rather tax five per cent on banks’ profit.

“There is the need to introduce a tax on total liabilities net of equity and insured deposits for big banks with balance sheet size of GH¢5 billion,” he said.

The lecturer added that slapping a five per cent tax on profit before tax for the six banks would yield approximately GH¢1.1 billion in revenue to the government. — GB