Moody’s lauds banking sector reforms

International ratings agency Moody’s has lauded the Bank of Ghana (BoG) for carrying out much-needed banking sector reforms within the specified time.

“The recapitalisation exercise’s completion within the planned timeframe shows BoG’s willingness to strictly enforce prudential regulations. Improved supervision quality and corporate governance will gradually boost confidence in the banking system,” Moody’s said in its recent report on Ghana’s banking sector reforms.

When the BoG announced the increment of stated capital in September 2017 from GH¢120 million to GH¢400 million with a December 2018 deadline, analysts and an association of indigenous banks pressured the regulator to relax the rules for indigenous players and petitioned the presidency to intervene.

But the BoG stuck to its guns, and by December 2018 only 23 banks remained standing – with the revocation of nine universal banking licences; three mergers involving six banks; a voluntarily exit of one bank; and the conversion of the universal licence of one to a savings and loans status for not meeting the stated capital by the deadline day.

“Fewer banks will likely enhance regulators’ capacity to rigorously monitor and improve the sector’s overall supervisory framework. BoG has already started to tighten the regulatory framework by issuing a corporate governance directive that will enhance banks’ corporate governance practices,” Moody’s added.

Moody’s however warned that Ghanaian banks still face challenges, and consolidation of the banking system does not guarantee strong future performance for all remaining banks.

“Asset risks in Ghana remain high, with NPLs at 20.1 percent as of October 2018. At the same time interest rates are falling, with the monetary policy rate currently at 17 percent – the lowest policy rate since 2013, straining income from government securities for banks,” the report added.

Further reforms from BoG

But the central bank believes that a raft of guidelines on corporate governance, credit analysis, and risk will reshape the industry and restore the much-needed confidence. The BoG is also addressing specific risks from high NPLs and poor risk management systems, embarking on roll-out of the Basel II/III supervisory framework, and ensuring implementation of IFRS 9 by all banks.

As part of the new Corporate Governance Directives, the BoG has specifically defined the roles of each member of a board, their tenure and age-limit, and board structure among others.

Notable among the reforms is capping the tenure of Managing Director/CEO of regulated financial institutions at a maximum of 12 years, split into three terms not exceeding four years per term. Again, directors shall have a maximum tenure of three terms at three (3) years per term. Also, no regulated financial institution shall have more than two (2) members that are related persons serving on its board.

Despite the detailed nature of the Corporate Governance Directives, the Bank of Ghana is also reviewing risk management guidelines for adoption by the industry to make sure banks and special deposit taking institutions undertake prudent risk assessments in their work.

Other guidelines and directives that have also been introduced are guidelines on mergers, acquisitions, ownership and control, guidelines for financial holdings companies, and outsourcing guidelines among others.

Also, the Banking and Supervision department of the BoG, according to Governor Dr. Ernest Addison, has been strengthened and resourced in order to undertake a comprehensive review and improvement of all supervisory processes; and ensure strong enforcement of prudential and conduct regulatory requirements, he added.

He added that the regulator will roll-out implementation of the deposit insurance scheme established under the Ghana Deposit Protection Act, 2016 (Act 931) while introducing Banking Sector Cyber and Information Security Guidelines to protect consumers and create a safer environment for online and e-payments products, in line with government’s interoperability objective.