The regulator with vested interests

July 17, 2017
Source: Gershon P. Anumu l thebftonline l Ghana
 The regulator with vested interests

I recall an episode of a headteacher in a prominent school who acts as the father for all the students and seen as a custodian of knowledge. By the arrangement, he is the first port of call when very important issues concerning the school and its students arise and need urgent leadership attention. He occasionally represents the school at major events where he meets his colleagues to share ideas on students' welfare. As the headteacher, he owes the students under him, a duty of care, equal treatment and protection. He instills discipline and ensures orderliness in the school.

Nonetheless, we have heard many times without number incidents of the headteacher’s relationship with one of the beautiful girls in the school who he cares for with a pampering touch. The headteacher’s girlfriend receives favours, tips and in extreme cases, examination leaks that other students do not get. While other students would rack their brains to pass the headteacher's tests and meet his other expectations on time, same may not be said of his girlfriend. She is enjoying the warmth of the relationship as long as the two are willing and ready to keep some of their actions from the eyes of the inquisitive onlookers. This type of relationship with all its emotional connections could be likened to a referee to a game in which he is a part financier of one of the teams on the field of play. He is strongly likely to tweak the rules of the game at certain stages to protect his interests. Can same not be said of the Bank of Ghana (BoG) in respect of its existing shares in ADB as well as its relationship with other banks in the country?

Shareholding

Shareholders are owners of a company. The shares in a company can be seen as slices of a cake with a special taste for persons whose minds have met together to contribute money to prepare the cake. The size of a slice of the cake each person would receive is determined by a token of the amount he put in the kitty towards the preparation of the cake. Indeed, shareholders receive parts of the company's profits in a form of a dividend which is dependent on the number of shares they hold in the company. It is said that he who pays the piper calls the tune and it is apt and rightly so for prudent shareholders who provide money and other resources to any company to have a say in the affairs of the company. As owners of a company, shareholders take necessary actions to protect their interests which give them economic power with a bragging right and a voice of authority in society especially when the company is making profits. Therefore, the Bank of Ghana (BoG) as a shareholder in ADB cannot be denied same rights and obligations other shareholders are titled to by law and practice but it is in a pole position as the industry regulator.

In the recent Extra-Ordinary General Meeting held in Accra, it came to light that the shareholding structure in ADB has changed with Institutional Investors including Bank of Ghana (BoG) holding stake of 9.5% while other shares going to BelStar Capital 34.3%, Government of Ghana 32.3%, Starmount Development Company 11% and EDC 6% with the remaining going to staff and retail investors. In order to give semblance of a limit to its control in the affairs of ADB, the BoG reduced the number of its shares in the bank but as a regulator who is clothed with supervisory powers, its influence on ADB cannot be underestimated in pursuing its economic interests. It can still give directives which it would otherwise give on the board of ADB if it had retained its previous percentage of shares. Indeed, the influence of Bank of Ghana in the affairs of ADB as a shareholder has not be completely wiped.

 Mandate of the Bank of Ghana

Consequently, the Bank of Ghana exercises its mandate to ensure that:

1.Depositors' funds are safe;

2.The solvency, good quality assets, adequate liquidity and profitability of banks are maintained;

3.Adherence to statutory and regulatory requirements is enforced;

  1. There is fair competition among banks;

5.The maintenance of an efficient payment system

                                                          

Fair Competition

Business owners adopt strategies to enable them earn more returns on their investments which include measures to outwit their competitors. Item (4) of the mandates requires the Bank of Ghana to ensure fair competition among banks. Fair competition requires that banks in the country compete on same rules and conditions the Bank of Ghana sets for all of them as the regulator of the banking sector. Fair competition is tainted in my point view as long as it continues to hold shares in ADB through its subsidiary, Financial Investment Trust. The Bank of Ghana’s ability to use its supervisory powers to get access to array of information on competing banks can help it recommend to ADB to review and modify its practices, policies and strategies in line with other banks’ best practices which in the long run would favour it as a shrewd shareholder.

A school of thought would say that the Bank of Ghana’s continuous shareholding in ADB has not affected its role to ensure fair competition among banks in the country but we should not lose sight of the fact that it a regulator with vested interests in ADB and can use the privileged information it obtains on the industry for rent-seeking or economic gains at the expense of other players. Rules don't work in a vacuum. Implementation of some of the directives of BoG invariably goes beyond boardroom considerations of the banks to their shareholders for deliberations and approval. It is at this level that the BoG as a shareholder in ADB is trapped in the web of its own directives, notices or regulations which it must comply with as other shareholders would necessary do to avoid sanctions. It is worth noting that shareholders’ nominations for directorship of banks in the country are subject to sole approval of the Bank of Ghana, a regulator with same shareholder-interests in dividends payments as shareholders of other banks in the sector. Where then is the true fairness in the competition?

In the financial services sector in Ghana, the National Insurance Commission(NIC), the Securities and Exchange Commission(SEC), the National Pension Regulatory Authority(NPRA) and the Bank of Ghana (BoG) have split regulatory authority over the insurance, securities, pensions and the banking industries respectively. The Bank of Ghana, however, is the only regulator among them with a shareholding status. In the dispensation where the BoG is strongly advocating recapitalisation of banks, one would say that as a shareholder, it is the only player in the industry who is privy to the supposed actual new figure. Other shareholders could best be described as being in a speculative mood with grapevine information to say the list. By this posturing, the BoG in my candid view is unable to pass the standard test of fair competition.

Conflict of Interest

The Bank of Ghana by its conducts in respect of its competing interests in ADB is in the trappings of conflict of interest, a situation in which it may not be able to make impartial and fair decisions on some issues as certain times because it will possibly be affected by the results of those decisions. A school of thought would say that there is transparent disclosure on the shareholding status of the BoG in ADB and, therefore, there is no perceived conflict of interest, but that is far from the truth, with the presence of two legitimate interests, its profit incentives in ADB may conflict with regulatory duties. The Extraordinary General Meeting of ADB in which changes have been made to its regulations to limit representation on the board of the bank to shareholders with over ten percent (10%) shares could not insulate the Central Bank from conflict of interest.

The legendary headteacher whose is in a relationship with his student girlfriend is involved in conflict of interest. Likewise, the financier referee of the supposed football club playing a game he presides over is also involved in a conflict of interest. Dan Ariely, an Israeli American professor of Behavioral Economics in one of his writings said that the most difficult thing is to recognise that sometimes we too are blinded by our own incentives. Because we don’t see how our conflicts of interest work on us.  Indeed, the Bank of Ghana as a regulator and a shareholder in ADB is enjoying the incentives of its stake in the bank and, therefore, deeply embroiled in a conflict of interest as far as the rubric of sound corporate governance is concerned. This is my opinion.

                                                                                              The Writer is a CHARTERED BANKER

                                                                                              Writer’s email: Kwaku.Anumu@gmail.com