It is worth noting that the ultimate functions of financial systems is to increase the financial resources available to the economy and to ensure a more efficient utilization of those resources in order to stimulate and accelerate the process of economic growth. They do so by facilitating intermediation and its management (Financial Sector Reforms for Economic Recovery in Africa, 1994).
Money, money, money must be funny in a rich man’s world, so says the Sweden based pop group ABBA of the 1970s. But John Ploughman also says ‘poverty, you are my wife’s woe and my children’s sorrow’. No one wants to be poor; it is a bane for both individual citizens and for nations. In my view however, poverty is not the absence of resources, it is the product of poor and lazy way of thinking. In modern times, impunity and disregard for societal interests have given vent to criminals enriching themselves to the detriment of the broader society.
What at all can we do right in this country and be proud that we are the best in the sub-region and see the effect of our success resonating on all of us? The problem we have as a people is the fact that we are living in our past glories, glories and attainments which are 50 years old are what we still hold on to, as if the world has been stagnant all these years and that all others are still asleep. All we do is to shout our voices hoarse and beat our chest that we are the best in Africa or that what we intend to do in the future will be the best in Africa. Dreamers that we are, we are oblivious of the fact that the world is moving faster than we think it is.
Over the last two years and more, our financial sector of the economy has created ripples in the economy leading to the dissolution of five indigenous universal banks and their assets and liabilities all brought under one umbrella. That required government interventions via the Central Bank to ensure that depositors of those banks did not lose out. We were further informed that the activities of other non-bank institutions were being critically looked into and their operations streamlined in line with state laws, rules and regulations.
The financial system, we are told, consists of many institutions, instruments, and markets. Financial institutions range from pawnshops and moneylenders to banks, pension funds, insurance companies, brokerage houses, investment trusts and stock exchange. Financial instruments, we are also told range from currency notes and cheques to mortgages, corporate bills, bonds, stocks, futures, options and swaps. Markets for these instruments may be organized formally or informally.
However, in all these financial activities, there are regulatory bodies that supervise the activities of financial institutions the world over. Central to the regulatory and supervisory activities of the financial sector is the Central Bank of every country and the key element in the performance of the Central Bank is its degree of autonomy. If governments interfere in the operations of the Central Bank, it will impede the work of the Central Bank in managing the financial sector of the economy.
Banking regulation and supervision are key elements to prevent or limit the damages of poor management. It is trite knowledge that Central Banking regulation lays down the rules of the game, while supervision verifies that the rules are followed and enforced. Globally accepted Central Bank regulations include;
a. Limiting the degree of leverage by setting maximum debt-equity ratios based on a risk profile of assets,
b. Establishing a minimum level of capital to total assets that would take into account the risk profile of assets and 50 per cent of the contingent risk associated with off-balance-sheet activities,
c. Requiring portfolio diversification by restricting the volume of credit banks can extend to any single client or industry sector, as well as connected lending. The volume of credit is restricted to a given percentage of the bank’s capital,
d. Introducing loan loss provision to ensure that the quality of assets on the bank’s books is properly reflected in the balance sheet,
e. Maintaining standardized accounting, auditing, and closure standards
f. Providing effective procedures for the Central Bank to remove the board and management of a bank, irrespective of shareholders’ wishes, and appoint temporary replacements in cases of insolvency, imprudent banking practices, or danger to the system’s stability.
The supervisory role of the Central Bank also includes;
a. Requiring banks to publish timely, accurate, and standardized consolidated accounts, and to send them to the supervising agency,
b. Mandating auditors to submit letters to management on improvements needed in the institution’s systems for financial accounting, budgeting, costing, internal controls and management information,
c. Stipulating that the bank’s accounts and assets be audited by external auditors,
d. Monitoring the quality of the loan portfolio by checking for delinquencies on loan payments and hidden defaults on loans,
e. Enforcing minimum professional requirements via a licensing system among others.
There is absolutely no doubt in my mind that Ghana’s Central bank i.e, the Bank of Ghana (BOG) has the regulatory and supervisory departments with Heads and staff whose duties include some of the responsibilities outlined above. The questions which need answers for the consumption of the general public in the face of the closures of some of the financial institutions in recent times are: did the two departments exercise their mandates in as far as the affected financial institutions were concerned?
In the course of the regulatory and supervisory roles, did they ever see any delinquencies on the part of the affected financial institutions and what measures were put in place to mitigate the outcomes of their delinquent activities? If they did not, were there no higher authorities to question their negligence which might have led to the crisis we have on our hands?
There is a certain behavior of Ghanaians which characterizes our low and lazy thinking. When a particular economic activity blossoms, thousands would move in as individuals to invest and attempt to capture the market taking advantage of the weak institutional regulatory and supervisory regime. In less than 15 years, there has been a proliferation of financial institutions of varying sizes and degrees all aiming at the same limited market.
Ordinarily, there should be nothing wrong with individuals making investments in areas of high returns; however, Ghanaians must learn to pull resources to be able to increase their capital and assets so they can adequately finance their businesses. They should be able to share their managerial functions on the basis of individual abilities and knowledge. The lack of trust among Ghanaians or better still the selfishness of individual Ghanaians makes it difficult to raise adequate capital for business.
Couldn’t some of the local universal banks, knowing that on their own, did not have the new capital requirement by the BOG, have merged their banks to get one financially sound bank to operate? What is the point in having 100% shares in an institution which is functionally weak instead of being even a 30% shareholder of a booming bank?
It is gradually becoming evident that as a people, there is nothing that we can do well on our own. Where, from the outside some businesses look good, they might be performing on the wings of weak institutional supervision or bribing their way through success. What is worse is the fact that even as the practices of public officials hurt this country in many ways; the state seems too weak to punish those who facilitate behind the scenes, the destruction of our economy.
Why? They are either financiers of political parties, school mates of those who should take actions against them, are related to them or are from the same ethnic groupings. The worst today is that they attend the same churches. God, if you are listening to me, come down before your appointed time.
Daavi, please give me four tots.
 Kb2014gh@gmail.com
From Kwesi Biney