Bank of Ghana to scrutinize compensation policies for bank CEOs

The Bank of Ghana (BOG) is to begin scrutinizing compensation policies for chief executive officers, key management personnel, and board of directors of universal banks.

Dr Ernest Addison, the Governor of the BOG, who announced this, said the Central Bank would work with the universal banks to align compensation with overall bank performance by linking it to clear parameters, including the quality of a bank’s assets.

He said to ensure transparency, banks would be required to publish Value Added Statements disclosing details of the compensation packages of key management personnel and board of directors separately from total employee compensation.

That, Dr Addison said, was to ensure that banks did not pass on their operational inefficiencies and overhead costs to their clients.

He said to further deepen transparency in the determination of lending rates, banks would be required to develop and publish a clear framework on the risk premium build-up that impacts on an individual borrowers’ credit profiles.

This is expected to provide borrowers with a more-informed basis for negotiating lending rates with their banks and enhance transparency in the credit delivery process, while promoting responsible credit behaviour from borrowers.

Meanwhile, the Bank of Ghana is to set aside two per cent of the banks’ primary reserve to support targeted lending to Small and Medium Enterprises (SMEs) as part of the Enterprise Credit Scheme announced in the 2020 Budget.

The funds will be held at the Bank of Ghana and made available to banks that participate in the Scheme.

Dr Addison said the move was to support and strengthen the growth of credit to the private sector and boost SMEs activities.

He said the Bank of Ghana would also explore the possibility of setting a minimum loan to deposits ratio to ensure that more deposits mobilised by banks were channeled to viable private sector projects.

The BoG will hold further consultations with the banking industry to determine the impact of such a regulatory measure, and if warranted, determine the level of such a ratio and appropriate monitoring and enforcement mechanisms to promote its effectiveness.

The Bank of Ghana is also putting in measures to reinforce the existing credit infrastructure by, among other things, strengthening enforcement of the credit bureau system under proposed regulations to be made by Parliament pursuant to the Credit Reporting Act of 2007 (Act 726).

There would also be further strengthening of the collateral enforcement mechanism under a new Borrowers and Lenders Bill to improve the quality of loans made by banks and facilitate their recovery.