Ghanaian Banks Face Margin Squeeze as PwC Warns of Outdated Business Models

Ghana's banking sector is facing a critical juncture as persistently low interest rates threaten the profitability of traditional lending models, according to a recent assessment by PwC Ghana. The advisory firm has called on commercial banks to fundamentally rethink their operational strategies to survive and thrive in an environment where net interest margins—the gap between borrowing and lending rates—continue to narrow.

The warning comes at a time when Ghana's monetary policy has shifted toward lower rates following the Bank of Ghana's efforts to combat inflation and stimulate economic activity. However, this supportive environment for borrowers has created significant challenges for lenders whose business models have historically relied on wide interest rate spreads to generate profits.

The Profitability Squeeze

According to Ashiagbor, the prolonged period of low interest rates will place mounting pressure on the conventional banking business model. Banks that depend primarily on the difference between deposit rates paid to customers and lending rates charged to borrowers will find their earnings increasingly compressed. This is particularly acute for retail and small-to-medium enterprise lending, where customer acquisition and operational costs remain fixed even as revenue per transaction declines.

The challenge is compounded by rising operational costs, including technology investments, regulatory compliance, and staff expenses, which banks must continue to bear regardless of interest rate movements. Without alternative income sources, profitability becomes unsustainable.

Diversification: The Path Forward

PwC's recommendation centres on identifying and developing new revenue streams beyond traditional lending. Potential avenues include:

• Digital banking and fintech partnerships to reduce operational costs and reach underserved customers
• Fee-based services such as wealth management, investment advisory, and asset management
• Payment processing and transaction-based services capitalising on rising digital commerce
• Insurance products and ancillary financial services
• Trade finance and corporate advisory services for larger clients

Banks that have already begun this transition—investing in digital platforms, launching investment products, and expanding beyond traditional deposits and loans—are better positioned to weather the current environment.

Why It Matters for Ghana

The health of Ghana's banking sector directly impacts the broader economy. Banks are critical intermediaries channelling savings into productive investment. If profitability deteriorates sharply, banks may tighten lending standards, reducing credit availability for businesses and households. This could slow economic growth at a time when Ghana is recovering from recent fiscal pressures.

Additionally, if banks fail to adapt and profitability collapses, systemic risks could emerge, threatening financial stability. The Bank of Ghana and industry regulators will be watching how lenders respond to this challenge. Those that innovate and diversify will likely emerge stronger; those that cling to outdated models risk being left behind or acquired by more agile competitors.

For consumers and businesses, the PwC warning underscores the importance of banking sector resilience. A competitive, profitable banking system with diverse revenue sources is more likely to maintain service quality, invest in infrastructure, and continue supporting the economy.