The BoG should not be the same body to supervise banks & formulate policies-Gane

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Aspiring independent presidential candidate, Mr. Marricke Kofi Gane, is advocating for a system that would separate the prudential duties of the Bank of Ghana (BoG) from its fiduciary duties.

The aspirant told Kwabena Agyapong in an interview on Rainbow Radio 87.5fm that the central bank should be the regulator and at the same time policy formulator.

Under his presidency, this system would see a review to have another independent body to regulate the banking sector.

Using the UK as an example, he said they have bodies that enforce compliance in the banking sector; a system he believes could be replicated here in Ghana.

The functions of the central bank are but not limited to the formulation and implementation of monetary policy aimed at achieving the objects of the Bank; promote by monetary measure the stabilisation of the value of the currency within and outside Ghana; institute measures which are likely to have a favourable effect on the balance of payments, the state of public finances and the general development of the national economy; regulate, supervise and direct the banking and credit system and ensure the smooth operation of the financial sector; promote, regulate and supervise payment and settlement systems; issue and redeem the currency notes and coins and do all other things that are incidental or conducive to the efficient performance of its functions under this Act and any other enactment.

However, Mr. Gane says these functions should be separated to make the work of the regulator simpler.

Background 

As part of its efforts to restore confidence in the banking and specialized deposit-taking sectors, the Bank of Ghana embarked on a clean-up exercise in August 2017 to resolve insolvent financial institutions whose continued existence posed risks to the interest of depositors. 

A comprehensive assessment of the savings and loans and finance house sub-sectors carried out by the Bank of Ghana in the last few years, identified serious challenges (see Annex 2), summarized as follows: 

The levels of capital held by some savings and loans companies and finance house companies were in violation of the minimum regulatory capital required by Act 930. This made it precarious for these institutions to continue to undertake the business of specialised deposit-taking institutions, given the risks they posed to their depositors and other counterparties to whom they were exposed directly or indirectly;
Excessive risk-taking without the required risk management function to manage risk exposures;

The use of depositors’ funds to finance personal or related-party projects or businesses on terms that were not commercial, leading to little or no income accruing to the relevant savings and loans companies or finance house companies and thereby compounding their liquidity challenges; 
Corporate governance weaknesses with weak Board oversight, poor accountability, and override of internal controls;

Creative accounting practices and under-provisioning for impaired assets, thereby misrepresenting their true financial condition to the Bank of Ghana and other stakeholders; and Persistent regulatory breaches, involving non-compliance with Bank of Ghana’s prudential rules, and failure to implement Bank of Ghana on-site examination recommendations.

All efforts by the Bank of Ghana to get the shareholders and directors of the affected institutions to rectify the above lapses, especially the significant capital deficiencies, yielded no positive results. Consequently, the financial position of these institutions has continued to deteriorate, leading to their insolvency with some of them ceasing operations and closing their offices to depositors whiles those currently in operation are unable to pay depositors and other creditors at all or fully. 

Given the risks that these institutions continue to pose to the entire financial system and the need to protect the interest of depositors, the Bank of Ghana is sanitizing this subsector through the orderly resolution of the failed institutions in accordance with Sections 123 to 137 of Act 930.

By: Rashid Obodai Provencal

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