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