No turning back on banking reforms – Central Bank

The Bank of Ghana has stated it will not compromise on its resolve to ensure that it restores trust and confidence to the country’s banking sector, despite pleas for leniency by some local banks that they be given extension on the December 31, 2018 deadline to meet the revised minimum capital requirement.

The Second Deputy Governor of the central bank, Mrs. Elsie Addo Awadzi, speaking at a high-profile stakeholder meeting attended by heads of commercial banks in Accra spoke of the Bank’s commitment to effective supervision and enforcement.

“We will ensure banks obtain and maintain the right levels of capital and liquidity, employ sound risk management practices, effective internal control systems, and good corporate governance in order to remain safe, sound and resilient. This should help to reduce the likelihood of bank failures, the loss of depositor funds, and the loss of jobs,” Mrs. Awadzi told the bankers yesterday.

She reiterated the Bank’s resolve to conduct an overarching overhaul of the banking sector through a number of reforms that should promote a strong and resilient banking sector to support robust macroeconomic growth.

Some of the reforms cited by Mrs. Awadzi relate to operationisation of the deposit protection scheme established under the Ghana Deposit Protection Act, 2016 (Act 931) as amended, to provide further protection for depositors’ funds.

The central bank, she said, will ensure a smooth transition to the new capital requirement by December 2018, while addressing specific risks from high non-performing loans, weak corporate governance and poor risk management systems.

Also, the roll-out of the Basel II/III supervisory framework and implementation of IFRS 9 by the banks is expected to continue according to the agreed various timelines.

The central bank stated that it will get tough on corporate governance, which among other things will see the Bank of Ghana issue and strictly enforce “fit and proper person” guidelines for bank shareholders, directors and key management personnel, to promote high standards in the industry.

For banks that are part of a holding structure, some of the new reforms the central bank mentioned will involve strengthening their regulation as well as their parent holding-companies and affiliates to reduce intra-group exposures.

Having come under some amount of criticism for its failure to detect in time some of the early warning signals that led to collapse of some financial institutions, the central bank stated that it will also undertake a house-cleaning exercise.

“The Bank of Ghana will continue to strengthen our Banking Supervision Department through capacity building and improved supervisory processes, in order to identify early warning signs of bank distress and take prompt corrective action to address such risks,” Mrs. Awadzi said.

BoG’s responsibility

While the Second Deputy Governor maintains that the banking sector’s outlook is positive, she admits that there are a few pockets of vulnerability in the sector which it will continue to monitor on an active basis to ensure the banking sector continues to be safe and sound – and depositors’ funds remain safe.

The Bank of Ghana’s statutory mandate includes responsibility to promote stability of the financial system, and to protect the interests of depositors.

“This is a responsibility management at the Bank of Ghana takes very seriously. In light of this, the culture of regulatory forbearance that once prevailed will not be countenanced,” she noted.