Former Finance Minister, Mr Seth Terkper, has stressed the need for a review of the country’s banking laws to incorporate same practices as used in other advanced countries.
“We need to make the necessary regulatory corrections and necessary statutory corrections, insist on proper oversight responsibilities by Parliament, and explore the possibility of placing the non-bank financial sector under a financial services authority,” he mentioned.
He said lessons must be learnt from the current banking crisis that has hit the country so hard and take immediate steps to prevent a recurrence.
Speaking in an interview on a radio programme, monitored by the GRAPHIC BUSINESS, he said although he supported the efforts of the current Governor of the Bank of Ghana (BoG) towards restructuring the banking sector, a lot more is needed to prevent another misfortune.
“It is time for us to look at what other countries are doing and strengthen our laws and corporate governance practices,” he stated.
It has become the phenomenon where players in the banking industry divert depositors funds into non-core activities of the bank, a situation which makes them vulnerable in instances where they do not make the right returns on those investments.
This practice is common among the savings and loans and micro finance companies where they invest depositiors funds in real estate and transport in their quest to make more profit to run their businesses.
In the universal banking sector also, players are seen financing huge long term projects which eventually affects their liquidity, a situation which them unable to deal with emergencies when depositors demand their money.
The practise, Mr Terpker said was unacceptable and dangerous and urged the central bank to take a critical look at that practice and device measures to stop the practice if the banks are to survive.
“There was a global phenomenon where banks expanded into other non-bank financial businesses such as real estate, which led to some countries to strip banks from the non-performance of excessive non-core banking activities, and this is for us to review the law to incorporate such things,” he explained.
He said fortunately for the country, some of these things had already happened in other countries so Ghana only needed to learn from those experiences which have been duly documented and are available.
“Luckily, we are just getting out of the global financial crisis, which was a banking problem, and some of the issues we are seeing now are not unique in Ghana so we should learn,” he said.
Tiering of banks
The former Finance Minister also urged the BoG to consider the further tiering of banks in the country.
“Our banks are already tiered in a way and although we have the universal banks and savings and loans, we need to create other tiers,” he stated.
“Using the Basel criteria, if banking supervision sees that a bank’s capital adequacy ratio was going down, the bank should be restricted to give out loans to the limit of its capital adequacy ratio. You don’t assume that you are a universal bank and can, therefore, you can do everything,” he pointed out.
He said the further tiering of banks would also enable specialisation and niches which would benefit the industry.
“There are banks that want to be close to universal banks but don’t necessarily want to be a universal bank. When savings and loans companies are growing, the only tier they can move into is the universal banking tier but if there are other tiers that will enable them to specialise in other areas, I am sure some of them will opt for that,” he stated.
“Maybe if we allow them to remain savings and loans and rather add on to what they are doing they won't rush to become a universal bank,” he added.