Banks need strong corporate governance to survive - Governor

Governor of the Bank of Ghana (BoG), Dr. Ernest Addison, has called on banks to institute strong corporate governance structures in order to overcome challenges faced in the industry, adding that, a lack of it partly contributed to the sudden collapse of the UT and Capital banks.

Speaking at a breakfast meeting at the National Banking College in Accra themed: “The Role of Capacity Building in Transforming the Practice of Corporate Governance in the Financial Sector”, Dr. Addison said the current economic environment exposes banks to a lot of risk, hence, the need to employ good corporate governance structures to mitigate them.

“In our history, Ghana’s banking sector has also witnessed its fair share of corporate scandals and restructurings, including the collapse of Co-operative Bank and Bank for Housing and Construction. More recently, the revocation of the licenses of UT Bank and the Capital Bank due to significant capital deficiencies also partly reflected poor corporate governance practices within these institutions.

More especially, in the banking sector, good corporate governance is not only about minimizing corporate risks but it is also fundamental to improving economic performance due to the financial intermediary role played by banks. Banks in particular face a wide range of complex risks in their day-to-day business, and the consequences of mismanaging these risks can be severe—not only for the individual bank, but also for the system as a whole,” he said.

He added that to address this situation, the BoG, as regulator, has instituted measures aimed at ensuring that banks have put in place the needed structures that will promote good corporate governance practices.

“As part of the Bank of Ghana’s regulatory mandate, we have instituted guidelines aimed at improving governance practices in the banking sector. These include the adoption of the Risk-Based Supervision framework.

Among others, the risk-based supervision framework has adopted both off-site and on-site surveillance systems to provide early warning signals of emerging risks at either the individual bank level or on an industry-wide basis. It also provides the central bank a clearer picture of the risk profile of each bank and the required level of capital needed to support its operations within the industry,” he said.

Dr. Addison further revealed that bank will soon release a comprehensive corporate governance regulations for the banking industry which will outline issues bothering on the tenure of Chief Executive Officers and Non-Executive Directors of banks, the size of bank Boards, the retiring age for Directors and disclosure of attendance at Board meetings by directors in annual accounts.

These initiatives, he adds, are underscored by the fact that banks need sound corporate governance practices to build public trust and confidence, as well as operational credibility which in the long run goes to promote the safety and soundness of the entire banking system.

“Without sound governance structures, banks stand the chance of eroding public trust and ultimately jeopardizing shareholders investments and depositors’ funds,” he said.

Adding his voice to deliberations at the meeting, lecturer at the Ghana Banking College and CEO of Universal Capital Management, Dr. Richmond Atuahene, said one major issue hurting the banking industry is a lack of board independence, incompetent members serving on boards, and a lack of duty of care and loyalty, hence, the need for a strong board.

“Some of the Non-Executive Directors appointed to the banks’ boards lack the independence, objectivity and experience because most appointees have political affiliation, family connections, or have close association with either the CEOs or board chairpersons.

Most of them lack the necessary qualifications, experience in banking business to subject managerial decisions to proper scrutiny.

A strong independent board with the requisite skills, experience, competencies and qualification is therefore needed to ensure good corporate governance in the banking sector,” he said.