Framework to assess banks' sustainability begins – BoG

Ghana's Central Bank has begun the development of a Business Model and Viability Analysis (BMVA) framework aimed at boosting its supervisory practices for assessing the sustainability of banks’ business models.

According to BoG Governor, Dr Ernest Addison, the BMVA framework will enable supervisors to identify the vulnerabilities of banks at an early stage while ensuring soundness and safety to the financial sector.

Delivering the keynote address at the 40th Annual General Meeting of the Ghana Association of Banks, Dr Ernest Addison said the apex bank is developing this framework in line with assessing the implications of banks' strategic decisions along with their risks.

He further explained that this is mooted by the adverse impact of the Domestic Debt Exchange Programme which impacted on the profitability and standings of key banks operating in the country.

“Following the adverse impact of the DDEP, the Bank of Ghana is focused on assessing the implications of banks’ strategic decisions and its alignment with their risk appetites. Also, the Bank of Ghana has incorporated a limited Asset Quality Review in its supervisory programme for 2023,” Dr Ernest Addison said.

“This special exercise is being conducted to assess the health of banks’ loan and investment portfolios to determine if their asset classification is in line with Bank of Ghana’s classification norms as well as International Financial Reporting Standards,” he added.

He further noted that as a sequel to the implementation of Pillar 1 of the Basel II/III implementation in 2018, the Bank of Ghana intends to scale up the regulatory reform agenda through a series of engagements with the GAB on the roll-out of Pillar 2 of the Basel II/III capital framework.

“The framework will ensure that banks hold adequate capital for all material risks inherent in their operations. In this regard, regulatory guidance will be provided in the following aspects of Pillar 2, among others: i. Liquidity Risk Management; ii. Internal Capital Adequacy Assessment Process (ICAAP); iii. Guide to Supervisory Intervention; iv. Concentration Risk; and v. Interest Rate Risk in the Banking Book,” the Governor pointed out.

Dr Addison further added that to pave the way for a seamless rollout of Pillar 2 of the Basel II/III capital framework, the Bank of Ghana has issued the Risk Management Directive in November 2021.

He explained that the move will ensure that banks put in place appropriate systems for identifying, measuring, evaluating, controlling, mitigating, and reporting material risks that may affect their ability to meet their obligations to depositors and other stakeholders.

MA/NOQ

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