Governor of the Bank of Ghana, Dr Ernest Addison, has said the central bank intends turning the difficulties bedeviling the banking sector into opportunities that will culminate in forging a stronger and more resilient banking environment.
Since 2017, seven local banks have gone under. UT Bank and Capital Bank were the first to collapse. On Wednesday, 1 August 2018, five others: The Royal Bank, The Beige Bank, Sovereign Bank, The Construction Bank and uniBank – which had been put under KPMG’s administration four months earlier – were all merged into the Consolidated Bank Ghana Limited.
According to the Bank of Ghana, these banks were either struggling with liquidity issues, used suspicious means to gain their licences or would be unable to meet the new minimum capital requirement of GHS400 million by the 31 December 2018 deadline, thus, the need to save them.
Speaking at the 18th Annual Working Luncheon of the Ghana Association Bankers on Friday, 3 August 2018 in Accra, Dr Addison said: “The current challenges in the banking sector are surmountable and we can positively turn these into opportunities to establish stronger and adequately well-capitalised banking sector to support economic growth”.
Going forward, the Governor said “BoG will continue to strengthen its regulatory and supervisory frameworks to promote confidence in the banking sector and financial system as a whole”.
Dr Addison listed the following as some of the measures being adopted by the central bank to restructure the banking sector:
1. Fellow bankers, as we strive to sustain growth of the banking sector, let us be reminded that our actions and/or inactions have immensely contributed to the challenges that we are witnessing in recent times. Mr. Chairman, as you are aware, the banking industry is going through some turmoil but there are some positive signs of recovery going forward. In this regard, stakeholders’ collective effort is required to redirect, reshape and refocus the banking sector to its core principles and objectives as financial intermediaries for economic growth.
2. As you are all aware, the Bank of Ghana is mandated by law to promote the safety, soundness, and stability of the financial system and most importantly, to protect the interest of depositors. Since April 2017, the Bank of Ghana has introduced a comprehensive set of reforms with the sole objective of repairing and restructuring to ensure banks are well-capitalised and strong to support the fast-growing Ghanaian economy.
3. In achieving this objective, we have taken very difficult decisions. First, the closure of two banks in August 2017 and just two days ago, the consolidation of five banks (uniBank, Sovereign, Construction, Beige, and Royal) into a new indigenous bank, namely the Consolidated Bank Ghana Limited. Underpinning these rather unpleasant but needful decisions to ensure stability in the financial system were a series of infractions including, license acquisition by false pretenses, inadequate capital, high levels of non-performing loans owing to poor liquidity and credit risk management controls, and above all weak corporate governance structures.
4. Ladies and Gentlemen, to support government’s twin-objective of financial stability and strengthening indigenous banks, the Government of Ghana has recapitalised the newly-formed bank to take on the selected good assets and the liabilities of the defunct five banks. Additionally, the Government has also issued a bond of GH¢5.76 billion to cover the gap between the liabilities and good assets assumed by the Consolidated Bank. The doors of the new Consolidated Bank are already open for business with the general public.
5. Furthermore, the Government has assured the Bank of Ghana that it will be providing financial support to other indigenous banks as needed, to help them meet the minimum capital requirement of GHS400 million by 31 December 2018. However, the Government has indicated that such support will be limited to indigenous banks that are solvent, well-governed and managed, in full compliance with the Bank of Ghana’s regulatory requirements, and able to demonstrate that they have been unable to access private sector solutions for recapitalisation due to market conditions.
Looking ahead – strengthening the Supervisory and Regulatory Environment
6. Mr. Chairman, allow me to turn attention to the various regulatory reforms that the central bank is undertaking to strengthen and stabilize the banking industry. These reforms are aimed at ensuring the safety and soundness of individual banks, aligning macro- and micro-prudential risks to bank capital and addressing cross-sectoral and cross-border risks to the industry. In order to address the overall risks of the industry, and to properly risk-profile individual banks, we are revising the current risk based supervision framework to take account of the current developments in the global banking environment.
7. As part of our efforts to reduce the level of impaired assets, we have embarked on an exercise with the banks to help clean their books and remove the structural challenges that undermine the effective credit delivery process. We are enforcing our directive on loan write-off and will require appropriate disclosure of written-off facilities in the published financial statements of banks.
8. We are also reviewing the governing legislations on the credit reference system to require banks to submit both positive and adverse information on borrowers to the bureaus through a new portal that has just been developed. The BoG is also working on the collateral registry system to address some outstanding issues with foreclosure. We are also supportive of government efforts to enhance clarity in the land acquisition process which transmits into the collateral perfection processes for banks. In addition, we are hopeful that the introduction of the Ghana Reference Rate, Ghana Post GPS and the national identification program would contribute to the on-going measures aimed at reducing the incidence of loan defaults.
9. Mr. Chairman, our resolve to fight financial crime means we need to continuously invest and strengthen our AML/CFT regime by increasing the scope of AML risk-based supervision and collaborate with the Financial Intelligent Centre (FIC), Economic and Organised Crime Office (EOCO) and other law enforcement agencies to enforce the AML/CFT regulations. As we work closely with these agencies, the emerging area of crime that threatens the very existence of financial institutions is cybercrime.
10. Cyber criminals have managed to bypass security controls and to exploit breaches or vulnerabilities within the cyber and information security defenses of financial systems. In this regard, the Central Bank has issued a draft directive on cyber and information security to the banking industry. We have received comments and provided feedback to the industry on the directive and this would soon be launched and enforced to address the cyber security and related risks in the industry.
11. Mr. Chairman, we have also issued the final directive of the Capital Requirement Directive (CRD) which addresses Pillar one (1) of Basel II/III capital regime. We are now at the parallel-run stage in the implementation process and full compliance would be enforced by January 1, 2019.
12. We are currently working on requirements under Pillar II of the Basel Accord to strengthen the supervisory review process. This would involve the Internal Capital Adequacy Assessment Process (ICAAP) allowing banks to undertake an assessment of the capital commensurate with all their risk exposures. We are also driving the disclosure requirements in conformity with pillar III of the Basel accord to enhance appropriate information flow to market participants.
13. The process of fully operationalising the BSDI Act, 2016 (Act 930), is in progress and we are currently reviewing existing directives and regulations to align them with the Act. In line with this, we have issued draft exposures for comments relating to the “fit and proper” directive, financial holding companies and the mergers and acquisitions directive. As required by Act 930, these draft directives have been published on the website of the Bank of Ghana for comments.
14. Corporate governance has become increasingly important given recent infractions in the financial sector. As mentioned earlier, one of the key reasons for the revocation of licenses of seven (7) banks was weak corporate governance structures. In line with this, the Bank of Ghana, in consultation with the stakeholders, moved quickly to align with best practices by issuing a corporate governance directive for the industry. It became necessary that the transitional directive was issued in particular to clarify the operationalisation of this directive. In operationalising the directive, Bank of Ghana will look at ways to make this transitional provision practical, taking into consideration the current landscape of the top management of financial institutions.
15. The central bank, after discussions with the industry, has directed for the adoption of the accounting standard on financial instruments (IFRS 9) which began January this year. IFRS 9 requires banks to implement the expected credit loss model for the banking industry. Though it was expected that the implementation of new model would increase credit impairment in the banks, the central bank’s assessment of the impact, revealed that increases in loan loss impairment were largely contained within the regulatory credit risk reserve.
16. Mr. Chairman, as we move closer to December, banks are making frantic efforts to comply with the minimum capital requirement. As noted at the July MPC press conference, six (6) banks have already achieved full compliance with the recapitalisation requirement and the rest are at various stages of compliance. The Bank of Ghana is monitoring progress with each bank to ensure the execution of their plans and move towards compliance.
17. We have started work on addressing the crisis that bedeviled the industry and crisis management and response should be critical in enhancing customer confidence in the system. The implementation of the deposit protection scheme is on-going in line with the Ghana Deposit Protection Act, 2016 (Act 931) as amended to provide a safety net for vulnerable depositors in the event of a bank failure.
18. Mr. Chairman, as I take my seat, let me conclude that the current challenges in the banking sector are surmountable and we can positively turn these into opportunities to establish stronger and adequately well-capitalised banking sector to support economic growth. Going forward, the BOG will continue to strengthen its regulatory and supervisory frameworks to promote confidence in the banking sector and financial system as a whole.