Check risks to ensure financial stability – BoG to banks

Deputy Governor of the Bank of Ghana, Millison Narh, has urged financial institutions in the country to put in place coordinated liability and asset management systems and procedures to cushion them from the risks associated with their operations.

Opening a four-day workshop on strategic assets and liability management for selected banks in Accra, he said banks take on varied degrees of risks in the cause of providing fiscal support for economic growth; and, for that matter, an effective and comprehensive risk mitigation system helps them to beat down market and internal risks.

“Financial institutions play an important role in growing an economy, and in the process they take on varied degrees of risk such as credit, market and liquidity risks, among others.

“Proper risk management systems and procedures are therefore needed by banks to mitigate all these associated risks; liability and asset management should not be treated as a piece-meal management of the bank’s entire balance sheet,” he said.

Mr. Narh also implored the banks to train their Treasury and operational staff to acquire adequate understanding about current principles of risk mitigation, thus being enabled to harness available resources and ensure financial stability.

“A comprehensive LAM policy framework focuses on bank profitability and long-term viability by targetting net interest rates and margin ratio and net economic value, subject to constraints in its financial position.

Significant among the constraints are maintaining credit quality, meeting liquidity needs, and obtaining sufficient capital,” he said.

Assets and liability management is the process targetted at mitigating the risk faced by a bank due to a mismatch between assets and liabilities arising from changes in liquidity or interest rates.

The workshop, which was organised by Ghana International Bank (GHIB) as an expertise and knowledge-sharing act, provided participants with insights on how to categorise, monitor and manage risks within banks, and a detailed understanding of how a bank’s capital should be allocated based on risk from both regulatory and management perspectives.

GHIB’s General Manager, Operations, Mark Arthur, shared with B&FT the idea behind the training and its associated impact on economic growth: “Obviously, banks play a critical role in the economy of any country, and Ghana is no exception; and if they are to play role effectively, then they will have to identify, quantify, measure and mitigate the risks that are associated with what they do.

"It’s only when banks are able to do this that they can strengthen the banking sector and in the long run push growth of the Ghanaian economy. In the next four days we will be discussing issues around strategic assets liability management and risks in banks, leveraging on GHIB’s rich expertise in the field to empower local banks in cushioning against interest rate volatilities, as well as liquidity and other operational risks.”