A regulator’s eagle-eyes

The Bank of Ghana appears to have caught public attention in recent times more than has ever occurred since it was established in 1957. This is due to the crisis in the banking sector coming from the revocation of seven banks’ licences within a period of one year. In the wake of the revocation, the Bank received scathing criticism from the public for what has been summed up as its weak supervision and complicity in the crisis.

Senior banking executives and industry players have posited that monitoring of banks is weak because the Banking Supervision Department is overwhelmed by the sudden rise in number of banks and non-bank financial institutions in the country. Hence, they have made a passionate call for the department to be reformed to enhance its operations.

Indeed, banking supervision does not take place in a vacuum; there are fundamental principles which serve as guideposts to regulators. A thorough appreciation of the Banks and Specialised Deposit-Taking Institutions Act (930) 2016 reveals that the provisions were mirrored in international standards for effective banking supervisions. The Basel Committee on Banking Supervision in September 2012 came out with the twenty-nine (29) Core Principles for Effective Banking. They summarise the provisions in Act 930 – but with few modifications to reflect our domestic realities.

Therefore, I find it necessary to highlight few excerpts from the principles which focus on banking supervision as published by the Bank for International Settlements (a bank for central banks). This is to help engender holistic understanding of the recent regulatory decisions from a global perspective.


Principle 8: Supervisory approach

An effective system of banking supervision requires the supervisor to develop and maintain a forward-looking assessment of the risk profile for individual banks and banking groups proportionate to their systemic importance; identify, assess and address risks emanating from banks and the banking system as a whole; have a framework in place for early intervention; and have plans in place – in partnership with other relevant authorities – to take action to resolve banks’ issues in an orderly manner if they become non-viable.

It is revealing to note that this principle is in full tandem with Powers of Supervision and Control as stipulated in Section 91 of Act 930, upon which the Bank of Ghana stood to take recent decisions. For instance, the appointment of KPMG as an official administrator for uniBank, the appointment of an advisor for Sovereign Bank, as well as the bail-out of the erstwhile banks can all be understood as early interventions aimed at saving the banks. It can be said that they are in line with both the spirit and letter of the Act and Principle 8. As a state-owned institution, the issue of how efficient and effective or otherwise the Bank of Ghana acted in the circumstances will, however, continue to feature in public discussions.

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Principle 9: Supervisory techniques and tools

The supervisor uses an appropriate range of techniques and tools to implement the supervisory approach and deploy supervisory resources on a proportionate basis – taking into account the risk profiles and systemic importance of banks. This principle also agrees with expectations under powers of regulation and supervision. By implication, the Bank of Ghana’s supervisory powers is related to the proverbial eagle that should have sharp and watchful eyes. Like the eagle, the Bank of Ghana is empowered under the Act to keep its eyes on the licenced banks through visits, communication by way of its press releases, directives or orders. The Banking Supervision Department ordinarily has a routine plan on its annual calendar to visit the banks for inspection. As has been the practice, the scope of each inspection is coordinated between the on-site (inspectors visiting banks) and off-site (back office) team.

Indeed, after each normal inspection, the Banking Supervision Department (named in our case), is required to give a copy of its findings on such deficiencies or breaches, if any, in a post-inspection reports to the banks. It requests the banks to take corrective or remedial actions within a specified time it may deem appropriate by considering the general framework of compliance and risk management.

Consequently, it awards administrative penalties to banks which fail to comply with the remedial actions. The latent force of friction between banks and the regulator – considered to be interested in fault-finding and uncooperative – seems to have built mistrust between them in recent years. Regular engagement sessions between the regulator and banks is very necessary to build a robust financial system.

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Principle 10: Supervisory reporting

The supervisor collects, reviews and analyses prudential reports and statistical returns from banks on both a solo and consolidated basis, and independently verifies these reports through either on-site examinations or use of external experts. In fact, this principle resonates with Section 93 on Information and Periodic returns. It also identifies with what has come to be known as the Central Bank Examination Plan for banking supervision. It is clearly stated in 94. (1)  that “the Bank of Ghana ‘shall’ carry out examinations of the operations and affairs of each bank, specialised deposit-taking institution and financial holding company”.

It continues in 94 (2), the examination shall be carried out at a time and frequency that the Bank of Ghana may consider appropriate, taking into account its evaluation of micro-prudential and macro-prudential concerns and the risks posed by the institution”. Section 95(3) states that “the Bank of Ghana may appoint qualified accountants or other professionals to act as its agent in carrying out investigations”, which is also in sync with the use of experts contained in principle 10.

Principle 11: Corrective and sanctioning powers of supervisors

The supervisor acts at an early stage to address unsafe and unsound practices or activities that could pose risks to banks or to the banking system. The supervisor has at its disposal an adequate range of supervisory tools to bring about timely corrective actions. These include the ability to revoke a banking licence or to recommend its revocation. You will agree with me that remedial measures, as defined in Section 102 (Act 930) for banks, are in line with this principle. Also, Section 16 – which focuses on the banking licence revocation – was crafted according to this principle and understood in that context.

While regulations are vital risk management tools in the banking sector and must be applied to protect the financial system, they become prospects/suspects for violation by stakeholders when ethical values are relegated to the background even if adequate resources are available. We therefore have a responsibility to uphold ethical values which always hold the firm foundation of banking.

God bless You reading. Have a blessed day!

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