International rating 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¢120million to GH¢400million 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 warning
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 per cent as of October 2018. At the same time interest rates are falling, with the monetary policy rate currently at 17percent – the lowest policy rate since 2013, straining income from government securities for banks,” the report added.
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 the 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.
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.
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.