Financial sector crisis: ‘Banks must now be proactive about risk’ – EY

To avoid the recent financial sector crisis happening again, banks must now be proactive in their approach to risk, Michael Sackey, Partner-Advisory Services at auditing firm Ernst and Young (EY), has advised.

Sharing his thoughts on a forum organised in Accra by EY with the theme ‘Surviving and Thriving Through Current and Emerging Risks’, Mr. Sackey said for the fact that weak corporate governance was largely to blame for the banks’ failure, it has become necessary for them to be measured in their risk appetite so as to avert such a situation from repeating itself.

“In our case, most of the issues emanated from weak corporate governance. There are also other challenges as well, around enforcement of the regulations we had at the time. Thankfully, BoG has moved quickly to restore some sanity; but I would say most of it was around the weak corporate governance in most of the banks.

“You heard about related party transactions and the issues that emanated from them; these are some of the things that the new directives are aimed at addressing. Banks need to be a bit more proactive in addressing the risk that continues to affect the banking sector,” he told B&FT in an interview on the programme’s sidelines.

In a speech delivered on behalf of the Bank of Ghana Governor by one of his senior officials, Donats Frietas, he urged risk managers and compliance officers to put in structures which ensure that risks emerging from companies under a group structure are identified to avoid any ripple-effect they may have on other companies of the group.

“We expect that you, as captains of risks, are pretty much aware of your responsibilities in these directives. It is worth mentioning that our financial sector is strongly interconnected, and this requires the compliance officers to have effective risk-identification, risk assessment, and risk mitigation tools; and ensure an enterprise-wide risk management of all internal and external risks that confront their institutions.

“It is also important that as regulators we are very mindful of risks emanating from group structures. As risk officers, we expect you to have systems of identifying independent risks of group structures. We as regulators will always ensure that effective monitoring systems are in place,” he said.

The issue of risk management in banking has gained attention owing to the collapse of banks and other financial institutions in recent years. This has pushed the central bank to come out with directives on corporate governance, capital requirement, fit and proper directives, among others to restore some sanity and discipline in the sector.