Cases in Finance – Episode 16: Banking in 2026: “The SME & Commercial Banking Strategy”

“Low interest rates are not a temporary anomaly; they force institutions to rethink how they earn returns.”— Andrew Bailey, Governor, Bank of England.

Theocharis opened the discussion with a simple framing, one that immediately reset the room. “Directors, our SME and Commercial strategy for 2026 is designed around one reality: risk-free yield is normalising downward.

As the Government of Ghana bill rates compress, banks that rely on passive treasury income will feel it first and hardest.” He paused, letting the point settle.

“Our response is not to chase risk. It is to replace declining sovereign yield with controlled, cashflow-secured SME and Commercial income, priced correctly, monitored tightly, and scaled only where economics are proven.” This was not an SME growth story. It was a yield replacement strategy. And it began, deliberately, with pricing.

FEE STRATEGY: Pricing That Earns Its Own Discounts

Theo’s first move was to dismantle the illusion of uniform SME pricing. “For years,” he said, “we priced SMEs as if they were all the same. In 2026, pricing becomes earned, not assumed.” SME and Commercial clients would be segmented clearly. Micro SMEs would remain on standard digital tariffs: simple, transparent, and unsubsidised. Growth SMEs could access bundled pricing, but only by actively using revenue-generating products such as collections, POS, and FX.

Mid-Commercial clients would receive concessions selectively, anchored to demonstrated scale and total relationship profitability. “This ensures that lower fees are not gifts,” Theo explained. “They are rewards for behavior that lowers our cost and increases our yield, but pricing discipline alone would not protect margins. ”

3rd-Party Cost Discipline: Making Costs Visible and Controllable

Theo advanced to the next slide. “In SME banking,” he said, “the silent margin killer is third-party cost; switch fees, processors, platforms. We can no longer absorb these blindly.” Under the new framework, third-party costs would be passed through unless the client met three conditions: digital-first behavior, use of at least two revenue products, and a minimum transaction velocity. “This flips the conversation,” Theo noted. “Low pricing becomes a function of scale and usage, not negotiation.” The hook was subtle but powerful: clients control their own pricing outcomes. And once pricing responded to behavior, risk controls could finally hold.

Risk Controls: Designing Growth That Does Not Break Operations

The Head of Operations raised the familiar concern: SME growth strains systems. Theo agreed, but calmly. “That only happens when controls are added after growth,” he said. “We are adding them before.” Digital onboarding would be mandatory, sharply reducing servicing costs. Low-margin clients would be required to adopt bundled products to deepen yield.

Relationship Managers would face volume caps, ensuring that operational capacity and credit oversight were never diluted. “These are structural brakes,” Theo said. “Growth is allowed but only where the bank remains in control.” With cost and operational risk contained, the economic picture finally sharpened.

The Economics: Turning SME Banking into a Yield Engine

Theo brought the discussion back to returns. “What this model gives us is predictable income,” he said. “Fees align with behavior. Third-party costs stop surprising us. Revenue per client becomes visible and enforceable.” He paused. “And critically, this income is uncorrelated with GoG bill rates.” That was the pivot. As treasury yields softened, SME fee income earned through activity became the first layer of replacement yield. But the real earnings lift would come from credit.

LOAN STRATEGY: Replacing Sovereign Yield with Cashflow-Backed Assets

Theo addressed the room directly. “Directors, the second pillar of this strategy is working capital lending, but done properly.” Apogee would prioritise short-term, revolving working capital facilities structured strictly around operating cash flows. Limits would expand and contract in line with sales cycles. Repayments would be tied to collections, rather than rigid amortisation schedules. “This is how SMEs actually operate,” Theo said. “And lending that follows cash survives rate cycles.” Where GoG bill yields declined, well-priced, self-liquidating working capital loans stepped in, delivering higher risk-adjusted returns without duration risk. Still, cashflow lending required control.

Collateral Strategy: Receivables, Not Real Estate

Theo was unambiguous. “Our primary collateral is receivables, not land.” Facilities would be supported by confirmed off-taker agreements. Receivables would be formally assigned to Apogee Bank. Borrowing bases would be tied to verified invoices. All proceeds would flow directly into Apogee accounts. “This converts lending from speculation into structure,” Theo said. “We finance what has already been sold, not what might be.” Yet structure alone was not enough.

The Monitoring Agent: Making Repayment Automatic

To close the loop, Theo introduced the monitoring agent. Independent and technology-enabled, the agent would validate transactions, confirm delivery, monitor off-taker compliance, and ensure all payments were routed exclusively to Apogee Bank. “No side accounts. No diversions,” Theo said. “Off-takers pay only into Apogee.” The implication was clear: repayment became a system outcome, not a client decision. And when repayment became automatic, risk recalibrated itself.

Risk That Adjusts with the Cycle

As volumes slowed, borrowing bases would shrink. As sales grew, limits would expand, but only with verified proof. Over-financing was structurally impossible. Diversion risk was neutralised. Information asymmetry collapsed. “This portfolio does not chase growth,” Theo said. “It responds to reality.” And reality, unlike rates, could be monitored.

The Strategic Payoff: Earnings Stability Beyond GoG Bills

Theo closed where he began. “As GoG bill yields fall, our SME and Commercial strategy replaces passive sovereign income with active, controlled, cashflow-secured earnings,” he said. “Fees earned through behavior. Interest earned through real trade. Risk contained through structure.” The Chairman nodded slowly. “So instead of stretching duration or lowering credit standards,” he said, “we rebuild yield from operating businesses.” Theo smiled. “Exactly.” This was not SME banking as charity. It was SME banking as a disciplined earnings engine; priced for cost, structured for cash flow, and built to outperform when risk-free yields fade. Apogee Bank would not chase the cycle. It would outgrow it.

FINANCE LENS

From a finance perspective, Apogee Bank’s SME and Commercial strategy represents a deliberate re-engineering of the income statement and balance sheet mix in response to a declining sovereign yield environment.

On the income side, the model shifts earnings away from rate-dependent treasury income toward activity-driven, behavior-linked fee income and short-duration interest income. Fees are no longer static line items vulnerable to compression; they are dynamically earned through transaction velocity, digital usage, and product depth. This creates a revenue stream that is structurally uncorrelated with movements in GoG bill rates, reducing earnings volatility as monetary conditions ease.

On the asset side, the loan book moves away from long-tenor, collateral-heavy exposures toward self-liquidating working capital assets. These facilities carry shorter duration, faster turnover, and pricing power that reflects operating risk rather than sovereign benchmarks.

Importantly, credit risk is not increased to replace yield; it is reshaped. By anchoring lending to receivables, off-taker agreements, and controlled cash flows, Apogee converts SME exposure from probabilistic repayment to mechanised repayment.

From a capital and liquidity standpoint, the implications are equally important. Short-term, revolving facilities that recycle capital faster, improve risk-weighted asset efficiency, and align liquidity inflows with outflows.

As treasury yields decline, the bank does not extend duration or loosen standards; instead, it compresses risk, shortens tenor, and deepens visibility. In effect, Apogee is not merely growing SME banking. It is using SME and Commercial banking to rebuild yield quality, replacing passive income with operationally earned returns that can be monitored, priced, and controlled in real-time.

MOMENT OF CLARITY

The room grew quiet as the final slide faded. What crystallised for the Board was not just a strategy but a reframing of what yield actually meant. Yield was no longer something dictated by the Treasury auction calendar or the Monetary Policy Committee.

It was something designed into systems, behaviors, and structures. In this model, pricing disciplines client behavior, and behavior generates data. Data strengthens credit control and credit control makes repayment automatic. Automatic repayment turns SME lending from a leap of faith into a repeatable process.

The Chairman finally spoke. “So we are no longer waiting for rates to rescue earnings.” Theo nodded. “We are engineering earnings ourselves.” Apogee Bank was not reacting to falling GoG bill rates. It was decoupling from them. By tying income to real economic activity and risk to observable cash flows, the bank transformed SME and Commercial banking from a volatile segment into a stabilising force. This was not growth for growth’s sake. It was yielded with intent. And in a world where risk-free returns were fading, Apogee had chosen the harder path of earning its returns the disciplined way.

Discussion Questions

1. How effective is Apogee Bank’s approach of replacing declining sovereign yield with SME and Commercial income in mitigating the impact of falling Government of Ghana bill rates? What potential limitations or risks could emerge from this strategy?
2. Theocharis emphasizes that pricing should be earned, not assumed. How does behavior-linked pricing influence client engagement and bank profitability? Could this model create unintended incentives for SMEs?
3. How does designing controls before growth, including digital onboarding, bundled products, and relationship manager caps, help contain operational and credit risks? Can this approach be scaled across a larger SME portfolio without losing effectiveness?
4. The bank prioritizes working capital loans tied to verified receivables and off-taker agreements. How does this shift the risk profile of SME lending compared to traditional collateral-based lending? What are the trade-offs between structure and flexibility for borrowers?
5. The case presents yield as a function of systems, behavior, and controlled cashflows rather than interest rates. How could this reframing change how banks measure performance, allocate capital, and manage risk in a low-rate environment?

Previous Case (Episode 15) Discussion Questions Solutions

1. How effective is a conditional fee waiver policy in aligning customer behavior with bank profitability, and what risks could arise if conditions are too lenient or too strict?

Effectiveness:

• Conditional fee waivers directly link customer benefits to behavior that aligns with the bank’s profitability goals. Customers are rewarded for maintaining minimum balances, domiciling salaries, or engaging digitally, which increases transaction activity, deposit stability, and reduces costly branch interactions.
• This creates a self-regulating mechanism where only active, profitable customers receive benefits, protecting fee income from erosion.
• It also encourages digital adoption, lowering operational costs associated with cash handling and branch transactions.

Risks if conditions are too lenient:

• If thresholds for fee waivers are too low, many inactive or low-value customers may qualify, leading to revenue leakage, increased operational costs, and diluted profitability.
• Dormant or low-transaction accounts may exploit the system, reducing the predictability of fee income.

Risks if conditions are too strict:

• Overly stringent requirements may alienate customers, reduce engagement, and lead to customer churn, particularly among retail segments that are sensitive to perceived fairness.
• It could also slow the adoption of free banking programs and undermine trust in the brand.

Conclusion:

Conditional fee waivers are effective when balanced, enforceable, and closely monitored, ensuring alignment between profitability and customer incentives.

2. How do fee leakage, costly cash usage, dormant accounts, and channel abuse impact retail banking profitability, and how can data analytics strengthen internal controls to mitigate these risks?

Impact on profitability:

• Fee leakage: Unintended waivers or unmonitored free transactions reduce revenue, especially if high-volume customers exploit the system.
• Costly cash usage: Cash handling is expensive (tellers, security, logistics); excessive branch transactions erode margins.
• Dormant accounts: Inactive accounts receiving unintended fee waivers reduce overall revenue and distort fee income projections.
• Channel abuse: Customers may exploit loopholes by using physical channels while claiming digital benefits, increasing costs.

Role of Data Analytics:

• Tracks transaction patterns in real-time, flagging anomalies and potential abuse.
• Supports conditionality enforcement, ensuring only qualifying accounts receive fee waivers.
• Provides dashboards for operational monitoring, allowing immediate corrective actions.
• Enables proactive behavioral insights, guiding incentives to promote profitable behavior (e.g., digital adoption).

Conclusion:

Analytics transforms fee waivers from a risk to a controlled, strategic lever, reducing operational and revenue risks.

3. Considering the stress-test scenarios with MPR ranging from 11% to 25%, how does the combination of retail fee income and treasury earnings protect the bank’s net interest margin and deposit retention?

Mechanism:

• Retail fee income is stable and predictable because conditionality ensures that only active, profitable accounts benefit. Fee income (GHS 300–310 million) acts as a shock absorber when MPR declines.
• Treasury earnings fluctuate with MPR but are deployed strategically in BoG instruments, smoothing macroeconomic impacts. Low MPR reduces treasury earnings slightly (from 550 ? 520 million), but fee income compensates.
• In high MPR scenarios (up to 25%), treasury earnings rise (550 ? 630 million), enhancing NIM, while fee income remains stable.

Deposit retention:

• Active, high-value customers are rewarded with conditional free banking, maintaining loyalty even in volatile interest rate environments.
• The combination of fee income and treasury performance balances revenue, protecting margins and preventing attrition among the bank’s core deposit base.

Conclusion:

Retail fee income treasury earnings create a dual-layer buffer, stabilizing NIM and deposit retention across macroeconomic fluctuations.

4. Why is maintaining a conservative loan-to-deposit ratio (LDR < 45%) critical for stability, and how does it interact with CRR requirements and deployable deposits in a volatile interest rate environment?

Why conservative LDR matters:

• Ensures that deposits are not overextended, preserving liquidity and the ability to meet withdrawal demands.
• Reduces credit risk exposure and prevents pressure on interest margins if loans underperform.

Interaction with CRR:

• CRR (25%) locks a portion of deposits at the BoG, reducing deployable funds for lending or investment.
• Keeping LDR low ensures that deployable deposits (GHS 6 billion) remain sufficient to absorb policy shocks or fund profitable investments without breaching regulatory requirements.

Stress-Test Advantage:

• With LDR < 45%, even under high or low MPR scenarios, the bank maintains liquidity to manage withdrawals, treasury investments, and fee-based operations.
• It allows stable deployment in BoG instruments without over-leveraging the balance sheet.

Conclusion:

A conservative LDR is critical for stability and flexibility, enabling the bank to navigate policy volatility while maintaining profitability and regulatory compliance.

5. What are the potential trade-offs between customer satisfaction (through free banking) and profitability, and how does conditionality ensure that free banking benefits are sustainable for the bank?

Trade-offs:

• Offering free banking indiscriminately may enhance customer satisfaction but reduces fee income, increasing operational cost per transaction.
• Restrictive fee policies protect profitability but may reduce perceived value and customer satisfaction.

Role of Conditionality:

• Aligns free banking benefits with behavior that is profitable for the bank.
• Encourages customers to engage in high-value behaviors (digital adoption, minimum balances, active transactions).
• Balances the perception of fairness with operational and financial sustainability.
• Provides predictable revenue, allowing the bank to offer free banking without compromising profitability.

Conclusion:

Conditionality is the bridge between profitability and customer satisfaction, making free banking sustainable and strategic, not merely a marketing gesture.

Name: Enock Yeboah-Mensah

About: The author is a Strategy, Leadership & Finance Enthusiast, an Mphil Finance graduate of the University of Ghana Business School, a member of the Institute of Chartered Accountants, Ghana, and a part-time lecturer at the UGBS.

Email: [email protected]

 

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