The Governor of the Bank of Ghana Dr. Ernest Addison has said the Central Bank has no intention of placing a moratorium on the issuance of operating licenses for commercial banks and non-bank financial institutions.
Dr. Addison, speaking to the B&FT on the sidelines of the IMF/World Bank Annual Meetings in Bali, Indonesia stated the Central Bank , in its effort to clean up the financial system, will not shut the door on the entry of new institutions into the banking sector so long as they are ready to come in and play by the rules and regulations governing the industry.
The Governor stated, “I am not of the school of thought that supports restricting entry into the industry. Rather I support an open system that has a contestable market and which advocates for free entry and free exit.
What the Central Bank has done is to set the rule for the minimum capital requirement and once this is met alongside other requirements, entry will be granted. The Central Bank will then monitor to ensure that once you are in the industry, you make sure that you meet the minimum capital adequacy requirements, your NPLs must be low, you must be liquid and solvent and your governance structures meet approved standards”, the Governor said.
Since the beginning of last year, more than seven banks have lost their licenses following the implementation of a raft of reforms by the central bank to clean up the sector. The banks were declared technically insolvent and their licenses to operate were revoked.
The failure of the seven banks meant that there are 31 commercial banks still in operation with the number expected to reduce further following moves by some banks to consolidate for the sake of meeting the BoG’s GH¢400 million capital requirement.
Commenting on the central bank’s reforms, Dr. Addison said, “we are now beginning to enforce that model more effectively; in the sense that banks that are insolvent and not liquid, are getting their licenses revoked.
So, the model is working effectively now to the extent that you know if you are a bank or an NBFI and you are unable to perform you could lose your license. Out of the enforcement of the entry and exit rules, you would get some optimum number out of that.”
According to the Governor, the central bank is also keen on strengthening its oversight in the non-bank financial institutions sector which comprises of microfinance, savings and loans as well as finance houses; adding that the goal is to make that sector more robust.
The data on the Bank of Ghana’s website shows that there are currently 37 licensed savings and loans companies, 22 finance houses and as much as 484 microfinance institutions dotted nationwide.
The Governor stated the central bank will ensure that these institutions play by the rules and regulations while those seeking entry into the sector must be ready to go by the same rules and regulations.