ISSER holds discussion on financial sector

Dr Henry Kofi Wampah, Governor of the Central Bank of Ghana on Wednesday called for the formulation of robust financial policies and regulatory frameworks as a practical step towards a stable and efficient financial sector for sustained growth and structural transformation in Africa.

According to him, the absence of these policies could have disastrous outcomes, as seen during the recent global financial and economic crisis, saying, a well-functioning financial sector would significantly impact positively on economic development.

He, therefore, suggested that efforts to develop the financial sector should focus on enhancing depth, access, efficiency and stability, which were factors that had underscored efforts in most countries in the African sub-region to build sound, safe and stable financial sectors.

Dr Wampah was addressing participants at a public panel debate, organised on Wednesday by the University of Ghana’s Institute of Statistical, Social and Economic Research (ISSER), on how to build a stable and efficient financial sector for sustained growth and structural transformation in Ghana and Africa in general.

He underscored the fact that an efficient financial sector provided the rudiments for income-growth and job creation, and therefore plays a significant role in economic development.

He said the numerous policy reforms and transformations within the financial sector have yielded positive results with improved banking systems and stronger balance sheets and capital base, while risk management have been enhanced with some relative growth in capital markets across the continent.

According to him, recent reforms had laid emphasis on corporate governance issues, including enhancing transparency and accountability, improved information and disclosure requirements, investor education and promotion of better accounting and auditing standards in line with International practices.

Dr Wampah, however, indicated that notwithstanding the gains so far made, there were still some challenges such as the weak financial sector support for the real sector. He said corporate lending was still in many cases focused on the short end of the market and few banks engaged in long-term lending, while bank balance sheets tend to be dominated by short-term deposits.

There was also lack of adequate competition, as the banking sector remains in many cases, oligopolistic, leading to inefficient pricing of financial assets, while the increasing regionalisation of banks have brought on cross-border challenges that required appropriate regulatory frameworks.

He stated that Ghana’s financial sector has also undergone various restructuring and transformation since the implementation of the Financial Sector Adjustment Programmes from the 1980’s through to the late 1990’s, an era that witnessed the promotion of non-bank financial institutions and the liberalisation of the foreign exchange market and the establishment of the Ghana Stock Exchange among others.

He said the Bank of Ghana recently implemented a new base rate model that sought to ensure transparency and uniformity within the banking industry, which was part of efforts to enhance transparency in pricing of loans in the industry.

He said so far all banks have complied with the new framework and this has led to a decline in average base rates by three per cent across the banking industry. According to the Governor, this initiative, together with the credit bureau system and the operationalisation of the collateral registry would help address the problems of information asymmetry in credit delivery and thereby lower provisions for losses across the banking industry and reduce the cost of credit.

Mr Wampah further stated that the BoG has also taken steps to review the minimum capital requirements for new banking industry entrants and these increases in the minimum capital would enable banks to undertake big-ticket deals to support the growth of the private sector in the transformation of the economy.

He explained that this decision was critical for risk management purposes as banks would have adequate buffer to absorb unexpected losses.

He further stated that a standard Supervisory Intervention Guide, which sought to ensure a consistent and transparent framework for intervention in the operations of regulated deposit-taking financial institutions, was being developed in a bid to protect the interest of depositors and shareholders in the banking industry.

“This is being complemented by efforts to establish a Deposit insurance scheme, which is expected to become operational by December 2014,” he said.

Mr Wampah said the BoG was also taking steps to further strengthen the regulatory and supervisory regime, by revising and consolidating existing industry laws and introducing other guidelines, such as Corporate Governance Regulations, Licensing Regulations, Outsources Guidelines, Risk Management Guidelines, External Auditors Regulations and Merger and Acquisition Guidelines.

He said it was expected that these initiatives would address potential vulnerabilities and ensure a safe and sound banking industry in Ghana.

He, however, indicated that the challenge of maintaining the pace of progress over the medium-to long term was uncertain as macroeconomic stability gets anchored and interest rates declined further.

Mr Wampah said banks would have to continually review their risk management systems and explore new avenues to maintain the bottom line with emphasis on cost rationalisation and growing other areas of income.

He further advised players in the industry to embrace the challenge of reaching out to start-ups and small and medium enterprises, to grow new businesses that would sustain their balance sheets in the long term.

The other panel members also cited issues such as the low level of financial sector credit to SMEs for their expansion and growth, cost of financing and efficiency of the financial markets, as key concerns and setbacks towards sustained growth in Africa.

They advised that African countries learned from the experiences of other successful countries and desist from being complacent with their own situations.