Governor Knocks BoG For Supervising Financial System Rot

Dr. Ernest Addison

Governor of the central bank, Dr Ernest Addison, has pointed out that the ineffectiveness of the bank was responsible for the decay in Ghana’s financial sector, which recently pushed 420 institutions into receivership.

Delivering the keynote address at the  2020  edition  of  the  Biennial  GIMPA conference on Thursday near Accra, Dr Addison indicated, “The Bank  of  Ghana (BoG), as the regulator and supervisor on the industry, was ineffective during  the  period. Poor licencing  practices  led  to  licences  being issued without  the  appropriate  due  diligence  on  shareholders of capital and  their  sources,” adding that “the BoG over  activated  its  role  as  a  lender  of  last  resort and granted excessive amounts of  liquidity  support  to  failing  banks without  addressing  the underlying  problems  that  led  to  the  illiquidity  and  insolvency  of  these institutions.”

“Mr. Chairman, these resolved institutions had several deficiencies. Some of them were  set  up  overnight with little or no  capital  and  by persons with questionable backgrounds with little  or  no  experience  in  running  banks. A  common thread was that they were all managed  or  controlled  by  shareholders with complete disregard  for  prudential norms and best practices  in  corporate  governance. It was clear that they were set up to get access to depositors’ funds to finance other businesses of shareholders or other related related or connected companies. In the process, oligarchies were formed involving various groups of companies under  the  control  of  common shareholding aided by their relationship with political authorities,” he detailed.

The governor said the  BoG  itself  had  to  be  reorganized  and  restructured, and several key  reforms were  implemented to address  the  causes  of  the  systemic  failures that  took  place. The approach was three-pronged,  involving, (i) enhancements to  the  regulatory  regime;  (ii) sharpening  the  bank’s  monitoring,  supervision and  enforcement tools; (iii) enhancing  capacity  and addressing  the ethical culture  of  BoG’s supervisory  departments and  that of  the industry.

Noting that the supervision of banks had been strengthened with systems and structures to identify, assess and proactively mitigate or manage vulnerabilities and threats to stability. He said going forward the financial sector would require constant regulatory and policy attention to mitigate the risks.

Furthermore, he said the economic impact of the pandemic might result in higher non-performing loans and capital erosion of banks. “A recapitalization of the SDIs will become necessary to improve their resilience and enhance the safety of depositors’ funds. The lessons learnt are many. The BoG is putting greater focus on identifying the early warning signals and initiating prompt corrective action.”

By Samuel Boadi