I don’t know how many of us have been following this ugly trend in the banking system over some few years now particularly around this period of the year. Almost all the banks in the country not leaving out the Non bank financial institutions like savings and loans and Microfinance companies always waits for the last quarter of the year to unleash massive deposit mobilization campaigns or promos. This they do by using every available media to send the message that you can quickly get rich one time if you participate in their bank’s promo. Most airwaves, newspapers and billboards are not spared with such mind boggling and irresistible money offers in form of reward to anyone who wants to make him/herself rich without working for it.
This is contrary to what the scriptures says in Proverbs 13 verse 11. The New Living Translation says ‘’wealth from get-rich-quick schemes quickly disappears; wealth from hard work grows over time.” Interestingly, because the word of God is settled forever, our banks will always come back every year to look for the same deposit from the public year after year because it is wealth gotten by vanity which will always quickly disappear as the world of god says just like the winners of these raffle draws soon go back to their previous position before the windfall.
At this time of the year, most banks’ head office and their branches receives some new look with exciting decorations and promo banners. In addition they design various forms of T-shirts, polo or smart wears to promote their end of year business ‘rituals’.
This yearly rituals of the banks is gradually turning almost all of us to heroic idiots like those lazy individuals who still engage in pool betting and casino games when God Himself has said there is no way in that venture. They ask us to stake Ghc200 and win fabulous Ghc200,000. I don’t think there is much difference between deposit promo and other forms of lotteries, be it pool betting or lotto. The little difference I can see is that, in the case of deposit promo your principal investment (deposit) is secure with the bank you stake your lotto with, unlike football pools and other betting games where you lose both the initial amount staked and the jackpot you hope to win.
There are many similarities when you look at the two businesses. Usually, the organizers of these lotteries or promos, undoubtedly and excitedly laugh all the way to their banks, knowing full well that they have hit a jackpot; that is, their financial position has improved after the promotion or the game. The state is also benefitting from this ‘special windfall’.
The National Lottery Authority (NLA) an agency of the government that is charged with the responsibility to regulate the activities of such operators usually takes an approved percentage of this ‘crazy’ business from each promoter on the expected income from the promo through the initial cost-benefits analysis the promoters are mandated to submit to the authority before approval is granted. Once this is done they promoter is free to get on with the business whether or not it is injurious to the financial health of the people. That is not the authority’s headache. They too seem to have a budget expectation or target they have to make from these activities in a year to assist the government meet its financial needs.
Going forward, I think the promoters of these lotteries will need to sit back and devise other means of generating business particularly our banks because the usual promo is becoming highly unpopular with many highly informed banking public. They have come to realize that it is a zero sum game after all. It is a sham. I don’t want to call it scam because it is legalized by the state through the approval of the NLA.
For the benefit of some of our readers who may not be too familiar with the title, Zero-sum game, I used. Let me explain it to them quickly. In game theory, which is an economic theory, a zero-sum game is a mathematical representation of a situation in which a participant’s gain (or loss) of utility (i.e. deposit) is exactly balanced by the losses (or gains) of the utility (deposit) of the other participant(s). If the total gains of the participants are added up and the total losses are subtracted, they will sum to zero.
Thus cutting a cake, where taking a larger piece reduces the amount of cake available for others, is a zero-sum game if all participants value each unit of cake equally. A zero-sum game is also called a strictly competitive game.
I think with the explanation made above, will help my readers to have clear understanding what we are discussing. Poker and gambling are popular examples of zero-sum games since the sum of the amounts won by some players equals the combined losses of the others. So are games like chess and tennis, where there is one winner and one loser. In the financial markets, options and futures are examples of zero-sum games, excluding transaction costs. For every person who gains on a contract, there is a counter-party who loses.
Let’s get down to the basics. The reason why I said it is a zero-sum game is that after a bank has mobilized huge deposit through aggressive promos, it is expected that the bank’s deposit liability should increase significantly as a result of the exercise and consequently its liquidity position should be overwhelmingly strong.
The most reasonable thing that one expects to see after the deposit windfall is for the bank to either lend this available money, to the deficit sectors of the economy to help the economy grow by acting as the engine of growth which is the primary role of a bank in an economy. What do we see? The deficit unit of the economy is denied accessibility to these funds either through loan tightening or outright rejection of loan applications. Instead, they use the money to buy government secured Treasury bills or lend it among themselves through interbank transactions. No value addition to the economy. Everything becomes a zero sum game.
Secondly, some banks during this promo seasons stand to lose substantial portion of their deposit depending on their level of docility to their more aggressive competitors in a game that look like ‘dog eats dog’ kind of competition. The less smart ones with weak relationship management tend to forfeit good portion of their deposit to their more aggressive competitors who have strong marketing force that run after the deposit wherever they can get it even if it.
The money one bank is claiming to have mobilized as a result of the promo was a lost deposit of another bank who has taken his eye off the ball. The less aggressive bank will now have to pay what can be termed ‘price of regret’ for their passivity or naivety by going back to their competitor who through its wild aggression has unknowingly taken the deposit from their vault. They will now have to beg and borrow the same money at a cost through interbank borrowing. This is the second reason why I said it is a zero-sum game.
Thirdly, if you follow the Association of Ghana Industries (AGI) quarterly report on the economy. One of the major predicaments confronting them in the country is their members’ inability to access credit from commercial banks. This is a sad development despite the cost of borrowing in the country, which is the highest in the continent. I think accessibility should directly compensate for the expensive nature of bank loans, but it is a case of you cannot have the cake even if you are ready to pay for it at any price.
How do we reconcile all of this? If a bank claimed that it has mobilized so much deposit through deposit promo, why would it be difficult for that bank to give out loans to support businesses after having made the cost prohibitive to discourage ‘unserious’ borrowers. You will notice that the money is within the sector rotating among the banks to manage their existing bad loans and Non Performing Loans. I think this is why some people said the deposit promos of the banks are to manage their already battered liquidity position.
WHAT IS THE WAY FORWARD
Banks generally have easy access to recruit brilliant and intelligent people in the land because of the attractive nature of their remuneration packages, which hardly can be matched by most sectors of the economy apart from mining companies, oil and gas, and Telecom industries. And these quality employees are also looking for opportunity to work in a good and rewarding environment. That makes it a kind of telepathic relationship between employee and employers in this industry.
One expects that these intelligent bankers should be more creative in their thinking and resourceful in their approach to growing their employers’ deposit base and balance sheet size over the years. Unfortunately they have turn most of these smart guys to one way traffic thinking kind of people. They keep them in one small corner of the bank to be doing highly repetitive and monotonous job for a long period of time until they become dull, uninspired and unimaginative.
After about two or three years doing the same thing either just posting transactions or paying cash to customers they will announce their promotion to the same seat but at different salary level with little or no job enrichment or challenges opportunity to express their MBA or MSc qualification they acquired while on the job. This would lead to frustration and eventually the guy resigns and discovers he has not been able to fulfill his God given-destiny.
These bankers are not encouraged to tap into the best gift God has given them, their brain. Bankers are well paid not to use their brains but rather to lose their intellectuality and inquisitiveness on the platform that they are well paid. In actual fact what they pay them can be called “starvation wages”. It is salary an employer pays you just enough to keep you on the job and the employee too does just enough work so that he doesn’t get fired. They both enjoy cheating each other and at the end, the entire economy suffers. I think this must change immediately but encouraging ideas generation and innovativeness in our people as we look forward to take our country into another pedestal.
There are one or two ideas I want to share here on a ‘free bonto’ basis. Ghanaian banks should be more innovative and futuristic in the approach to deposit mobilization. We are told that the banks penetration rate is still very low in Ghana. About 60%-70% of our people are still not banked and we have achieved almost 100% in telephone penetration.
Partnership and Collaborations between Banks and Telecos
Commercial Banks should rather partner the telecos, not only on mobile money transfer (MMT) business alone but in the area of core banking business. This they can achieve by working hand in hand to ensure majority of telephone users who do not have bank account should enroll with any of the telecos’ partner-banks.
They can come up with a promo that says, if you have an active phone number and you are above 18 years but without a bank account in any financial institution, either small or major bank, if you open a savings account with any of these banks in the next three months you are entitle to Ghc200 as a gift from the bank you open account with but that initial credit bonus from the bank cannot be withdrawn until after six months of actively operating the account.
If they enter into such collaborative relationship with the telecom companies in the country; the arrangement will help banks get large numbers of unbanked public into the bank’s net. The telecos can help their partner-banks identify customer on their networks who are not receiving sms/ text messages from any of the banks which may be an indication that they are not currently banked.
Data of rural dwellers on mobile telecommunication company’s networks can be up loaded for the banks to be used for direct marketing either through text messages or other means. By so doing, bank’s penetration level would increase and consequently desired deposit base can be mobilized. The cheap deposit they are looking for can be access easily. Banks’ costs of funds will reduce and cost of lending or borrowing will also be significantly come down.
For this to happen, someone must take the initiative. This may come from either the BOG or NCA or the Association of Bankers. The two regulators must work hand in hand with bankers committee to provide the required guidelines and resource requirement for the smooth take-off of the operation bank the unbanked. Joint directives from both regulating institutions can help in this regard. Banks and Telecos will therefore work together as partners in process of transforming the economic position of our country and it may be a major turning point in annals of banking system in Ghana.
Local Correspondent Banking Relationship Approach
Secondly, banks in the country can introduce what can be termed local correspondent banking relationship. This is a collaborative relationship between universal banks and the Non Bank Financial Institutions (Savings and Loans, Deposit taking Micro finance companies, Rural and Community Banks).
The NBFIs appoints any of the major banks as their partner bank and the bigger banks can as well have a reverse arrangement with the so called small banks by using their facilities and their local networks to reach the hinterland. These they can do if they set up ‘village/community agencies’ where not more than two staff of the big bank manages the operations of the agency. The RCBs will act as their collecting banker in those small towns and villages. This may require entering into MoUs to agree on the profit sharing arrangement, operational modalities so that in the next three years the large percentage of bankable public can be fully captured and the economy can enjoy the benefits of having huge deposit of cheap funds residing in the vault of the banks. This will lead to having positive economic impact which we have already enumerated above.
Let’s Go a Fishing Project
The last one may be tagged “Let’s Go Fishing” Like the Christian do at a particular period of the year where they embark on massive evangelism to win new converts particularly in places where there are no churches and Gospel has not reached. Bank can emulate something like that by devoting a period of the year where they will go all out with free promotional items for the villagers and small towns. Such Rural community’s campaigns for more deposit and saving culture can be a too prong approach. One as deposit mobilization project and two a Corporate Social Responsibility (CSR) programme. If a bank embark on this campaign like the politicians do during election period. They can use that opportunity to plant small agencies at various communities’ centers for the people to save their money particularly where there are no communities or rural banks. This will allow more people have access to banking products and services and at the same time help the RCBs to up their games and render top class banking services to their ‘local’ customers because of the presence of competitor in their area of coverage. More jobs will be provided for rural folks, reduction in rural to urban migration and at the same time help Government in their rural development programmmes.