BoG wants banks’ action on pandemic-related risks

The Bank of Ghana (BoG) has asked banks to guard against possible risks to their business from the COVID-19 pandemic.

Speaking at a webinar this week on managing banking risks in uncertain times, organised by the Ghana Association of Bankers (GAB), Governor of the central bank Dr. Ernest Addison highlighted three major risks that the pandemic has unearthed or intensified, which must be efficiently managed by banks to avoid any unintended consequences on the industry.

These are risks related to cybersecurity, credit and operations, he said.

The pandemic, according to him, has boosted the move towards digital transactions and financial inclusion; however, it has also brought in its wake a heightened sense of cyber-attacks within the financial sector.

He therefore called for effective cyber risk management policies and procedures by banks.

“The Bank of Ghana expects all banks to build robust systems to forestall such cybersecurity incidences. All the successes chalked in the digitisation of banking systems would be eroded if adequate investments are not made for effective protection of the information technology and security infrastructure,” he said.

“The central bank has issued directives and guidelines such as the cybersecurity directive that banks must meet on an on-going basis to effectively manage cyber risk and fraud,” he added.

Dr. Addison noted that following the emergence of the pandemic in the country, the BoG introduced regulatory reliefs which have proven to be timely, and banks also responded appropriately with some form of forbearance for customers, in terms of loan reclassification.

“But the challenge going forward is how well banks account for the impact of the reliefs in terms of loan classification, expected credit losses, provisioning, credit risk weightings and the overall impact on their capital ratios or key performance indicators.”

Data from the central bank indicate that loan loss provisions grew by 28.0 percent in 2020, higher than the 23.6 percent a year earlier, reflecting higher credit risks.

“In response to these developments, banks may need to strengthen credit risk management policies and engage in risk-sharing arrangements through syndications,” Dr. Addison said.

The Governor indicated that the central bank is continuously monitoring the financial and economic environment to ensure the banking system operates effectively in delivering financial intermediation to support the recovery from the pandemic.

However, to further build their defenses against the pandemic, the Governor called on industry players to collectively strengthen their operational resilience in these times.

“From [the] supervisory perspective, I would entreat the various risk managers to continuously stress-test your banks under different extreme but plausible scenarios to enable you to contain possible risks that may emanate from the COVID-induced uncertainties,” he said.