Domestic Banks Increase Focus on Secured Lending as Foreign Banks Retreat

Foreign-owned banks continued to dominate the secured lending market in the fourth quarter of 2024, but their market share saw a notable decline, according to the latest Quarterly Collateral Registry Brief from the Bank of Ghana.

The report shows that foreign banks’ share of the secured loan market fell sharply from 74.6% in the fourth quarter of 2023 to 51.5% in the same period of 2024. In contrast, local banks saw an increase in their market share, rising from 25.4% to 48.5% over the same period.

This shift reflects the growing importance of domestic banks in the secured lending sector, as they gradually take on a larger role in a market previously dominated by foreign institutions. Despite the decline, foreign banks remain the leading players in the sector, but the growing participation of local banks indicates a significant change in the dynamics of Ghana’s financial industry.

In terms of interest rates, the average lending rate for secured loans in the fourth quarter of 2024 stood at 28.6%, a slight decrease from 28.8% in the previous year. This maintained banks’ competitive position as the primary lenders in the secured loan market.

Other financial institutions, including finance and leasing companies, rural and community banks, savings and loans firms, microfinance institutions, and microcredit companies, showed varying interest rate trends. For instance, finance and leasing companies had a lending rate of 33.1%, down from 38.8% the previous year. Rural and community banks recorded a rate of 33.5%, a drop from 34.4%. Savings and loans institutions offered loans at 43%, down from 44.1%. Microfinance institutions provided loans at 46.5%, a decrease from 51.1%. Microcredit companies had a lending rate of 49.5%, up from 47.7%, while finance houses recorded a rate of 59.4%, down from 60.3%.

The data reveals that while foreign banks still control the majority of the secured loan market, domestic banks are steadily increasing their participation, which could signify a shift in the overall financial landscape of Ghana. Local banks are gradually establishing themselves as more competitive players in the lending market, which has traditionally been dominated by foreign institutions.

The decreasing interest rates in some segments, such as finance and leasing companies, rural banks, and microfinance institutions, further suggest that competition is growing in the market. As the market becomes more competitive, borrowers may benefit from more affordable lending options across different financial sectors.

Although foreign banks continue to dominate the secured loan market, the increasing involvement of local banks points to a gradual transformation of Ghana’s financial sector. With more domestic banks entering the secured lending space, the financial landscape in the country is likely to evolve, offering more opportunities for local institutions and better terms for borrowers in the coming years.