BANKS MUST KNOW THE WHY

There is no doubt that 2014 as a year has been a difficult financial year for Banks Ghana. This is evident by the reduction in deposits recorded by banks against the projected budget. In view of the general reduction in deposits most banks over the past months have rolled out aggressive deposit mobilising strategy to help improve their deposit levels. One key strategy that I have noticed is the use of raffles. These promos by some leading banks promise rewards for clients who   save up to a certain amount and for a specified number of months. The rewards include adding zeros to the saved amount, mobile phone credits, etc. Observing this trend gives me a clue that most banks or financial sector players do not really understand the very nature of the clients they serve.

Having promos or increasing the role of advertisement to improve the deposits is not what I find wrong but it’s important for banks to understand the various reasons resulting in the overall reduction in deposits. Their findings or understanding of the situation can inform the efficient strategy that can help sustain deposits drive.

My understanding of the conditions leading to the decline in deposits can largely be ascribed to the responses of the average client to national economic issues. The two main reasons are as follows:

1) The cost of living has gone up without a corresponding rise in income levels. People spend more to obtain the same quantity of goods or services. Businesses have to spend more to produce the same quantity of goods due to general price hikes.  Most people therefore are forced economically to spend more leaving little or no amount for savings. This therefore means that people are not necessarily saving their excess monies outside the main financial system. They practically have to ration their income to meet their day to day needs and therefore are treating savings as a secondary issue.

2) Most clients now prefer to spend or save in tangible assets to protect the value of their savings. Some clients are also contracting high purchase schemes products to also avoid future price increases. These schemes provide people with the opportunity to use an item and pay later instead of saving-up to finance the purchase of the same item. The decision by clients to opt for these strategies is because the interest rate being paid by the banks on deposits cannot compensate for the loss in value of their savings. In addition the interest rate being paid cannot match up with the rising cost of goods and services. So the common sense approach is that if there  is anything to buy in the near  future buy it now whether on credit or with cash because the same product will cost more in the next few months.

In summary banks must understand that clients are economically rational beings. These clients can react to economic happenings and therefore banks must ensure to develop their strategy around the main issues affecting their clients. Banks must therefore not assume that clients are keeping their excess income on them and that the promos will drastically lead to improving their deposit levels.