BoG tightens financial sector regulations

The Bank of Ghana (BoG) has served notice to financial institutions of planned activities to cleanse the sector of errant firms that have failed to abide by regulations in the banking sector, in a clear sign the authorities have adopted a hands-on approach.

The Deputy Governor of the Bank of Ghana, Dr. Abdul-Nashiru Issahaku, told B&FT the central bank will for a start expand its enforcement exercise to clamp down on the activities of unauthorised financial institutions, as well as those that have failed to follow its licencing requirements.

He explained that the mode of operations of some of the non-bank financial institutions and rural banks is inimical to advancement of the central bank’s financial inclusion agenda, as their operations are not aligned with the micro finance best practices in the country -- requiring the Bank of Ghana to strengthen its policing activities.

He thus urged the rural and community banks to position themselves adequately to confront the challenges posed by emerging technological advancement in the banking industry, as this will help them to deliver effective and efficient work to meet demands of the Bank of Ghana so as to ensure the economy’s sustainability.

Currently, micro finance institutions in particular have come under intense public scrutiny for operating a scheme that eats into the deposit mobilisation base of especially rural and community banks, by offering customers high interest on their deposits.

The practice, which is largely unsustainable, has pushed the central bank to sanitise the financial services sector and create a platform that allows rural and community banks to function effectively.

Dr. Issahaku noted that the total assets of the rural and community banks have expanded by about 16.8% since March 2014 to GH¢2.16billion at the end of March this year.

He added that the total deposits of the rural and community banks stands at over GH¢1.65billion million cedis, with total investments reaching GH¢686.52million.

Additionally, rural and community banks have advanced GH¢787.73million as loans to customers, who are mostly into trading and agricultural activities.

Dr. Issahaku asked the rural and community banks to strengthen their governance and reporting structures, as one of the main failures of some rural and community banks is to do with weak corporate governance systems -- wherein board members compromise their oversight roles and allow breaches of regulations and ethical conduct to go unpunished.

He urged the board of directors of rural and community banks to upgrade their skills and knowledge in order to interrogate financial statements submitted to them by management, as well ensure the prudential returns submitted to the BoG are consistent with those submitted to them; thus ensuring transparency and proper accountability of the stakeholders’ contributions to the economy.

To enhance good corporate governance in banks, he stressed, the BoG has developed corporate governance regulations such as limits on tenure of directors, possession of certain competencies for directors, installation of good internal controls, internal audits as well as a compliance system that will be applicable to all entities regulated by BoG -- and failure to comply will lead to withdrawal of the operational licence he said.

Dr. Issahaku lamented that the operations of subsidiary companies owned by rural and community banks have led to the collapse of many rural banks, and so the BoG has directed all rural and community banks desiring to operate subsidiary companies to abide by provisions of the banking act; and that such subsidiaries must be properly supervised by a competent board of directors distinct from the board of rural and community banks.