“Remember that failure is an event, not a person.” – Zig Ziglar
Exactly a year ago, I recounted my sad experience as a victim of the first twin-bank collapse in Ghana eighteen years ago (the Ghana Cooperative Bank and Bank for Housing and Construction in January 2000). The second twin-collapse, which occurred in 2017 involving UT Bank and Capital Bank, also hit me hard as I soberly reflected on the fact that we seem not have learnt lessons from our past. Over eight hundred staff lost their jobs.
In August 2018, another major bank scandal has occurred again, leading to a take-over by the Bank of Ghana and establishment or consolidation of five private banks now called Consolidated Bank Ghana. Feedback received from readers showed that it has stirred emotions in people from all walks of life. Just like last year, I realised that many Ghanaians became ‘banking consultants, dissecting the ins and outs of the Ghanaian banks’ collapse. I strongly believe that it all boils down to a lack of ethics. Let us read what one expert says to buttress my firm belief that working with ethics is the true pillar of banking success.
The Four Pillars of Ethics in Banking
It is evident that ethics in banking is of supreme importance for the economy and society. According to Mirza Azizul Aslam in his article ‘Ethics in banking’ in the Daily Star, January 2012, ethics in banking must be firmly anchored on four pillars.
He says: “First, banks must comply with all laws, rules and regulations that are usually framed in any country to ensure soundness of operations and to enhance confidence of the society. These laws, rules and regulations may relate to, among others, capital adequacy; maximum shareholding by members of a family, qualifications and tenure of members of the Board of Directors and Managing Directors; representation of depositors on the Boards; credit rating requirements; maximum limits on single-party exposure; liquidity and credit/deposit ratios etc.
Banks are additionally subject to provisions of company law, tax laws and securities laws. Any attempt to circumvent any legal provisions must be considered unethical. The universe of law and the universe of ethics are not necessarily coterminous, but violation of law is rarely, if ever, ethical.
Second, banks must ensure fair and equitable treatment of all stakeholders. The interests of various stakeholders such as shareholders, depositors, borrowers and employees do not necessarily coincide. For example, banks may be inclined toward offering low returns to depositors and charging high interest rates from the borrowers in order to maximise profits and dividend for the shareholders. Such conflict of interest must be ethically balanced, keeping in view the greatest good of the greatest number.
Third, the banks must ensure full, truthful and transparent disclosure of their financial health. As noted before, many of the assets which turned out to be toxic were treated as off-balance sheet items. The concerned stakeholders were thus deprived of the right to get a transparent picture of the bank’s true financial health and the risks that were being assumed.
Fourth, banks must behave as socially responsible corporate citizens.”
This has been very well articulated. But in practice, how can all these be done? I can only say through a very simple all hands on deck self-audit.
A Holistic Approach to Unethical Practices in Banking
This week I will look at the issue not through the blame-game that we are all guilty of, but through a self-audit approach – as we all play our part in becoming more ethical in our banking business. Just as all parts of the human body make up a whole, everybody has a part to play in making banks successful – which involves a self-audit of all stakeholders in banking. I will first start with the ‘big guns’ in the industry before I come to the shop floor. After all, a chunk of the root causes in all bank collapses are due to the actions or inactions of the top hierarchy.
The Self-Audit: Questions to Ponder
I will start with some pertinent questions that we all – industry players – should ask ourselves.
Legal: The bank relies on its Legal Officers for protection and counsel in cases of legal suits. Are you abreast with the new banking laws? Have you imbibed the new governance directives from Bank of Ghana? How fast and efficient are you in following-up legal documentation on securities? I hope you scrutinise all the guarantees and documents and ensure the bank’s interest is paramount. How well do you understand the banking procedures which should feed your decision-making? If you are the Secretary to the Board, are you assertive enough to give the requisite legal advice at board meetings to protect the bank against future litigation?
Executive Management: How do you assess your bank with respect to peers in the industry? How well do you appreciate the numerous reports sent to you? Do you investigate and call for details of strange items in the report? How well do you appreciate the workings of the Assets and Liabilities Committee? How symmetrical is the information that you have with the ones that you prepare for Board meetings? Do you have policies and procedures covering all departments of the bank? How strong are you in withstanding the political and economic influences and shocks around you?
What is your leadership style? How transparent is your leadership? Do you have a listening ear? Remember, when disaster strikes it is your assets that will be frozen. Are you assertive enough to advise against certain instructions from the Board or shareholder(s) which are unethical, or you are afraid that you will be replaced? Do you go overboard in granting loans above your authorised limits to appease a boss or stakeholder? Do you apply the necessary sanctions to your subordinates, or do you lack the moral right to do so?
Board of Directors: How well-informed are you about the state of affairs in the bank? Do you ask the relevant questions when reports are sent to you? Do you critically understand the exposures being made to customers in relation to the bank’s capital position? Do you know the top-five risks in the bank? Do you make the Executives accountable for their actions? What is your relationship with the Chief Executive like? Are you working independently or kowtowing to the whims and caprices of the shareholder(s)? Do you have the moral right to apply sanctions on the management if they go against your directives? How do you manage role-conflict in performing your role?
Customers: What is your intention for banking? Is it for easy payment systems for your business, for loans to expand it, for business advice, for a personal relationship with that beautiful lady or handsome bachelor? What are your intentions for your loan proposal? To divert funds to repay your other loan in another bank or to buy that posh apartment to show-off to your friends and chicks?
Are you repaying your loans? Are you using your political influence in the bank to obtain more funds for your political agenda? Are you using the bank to channel the proceeds of your ill-gotten wealth into the country? Do you know about whistle-blowing in regard to bad practices in the banking business? How conversant are you with consumer protection in Ghana? Get to know your rights and responsibilities as customers.
Bank of Ghana: As for our dear father and IGP of all banks, we need a whole paper dedicated to you next time. Meanwhile, please ask yourself some pertinent questions: Can you absolve yourself from all these infractions? Even as far back as the ‘A-Life saga’, there were allegations of some staff looking away during the cross-firing of cheques by customers….Hmmm.
How well-resourced is your Inspection Team? Do they understand the complementary role of on-site and off-site inspections? Can they detect cross-firing, illegal placements of funds, the financial engineering, money laundering and single obligor infractions? Does the central bank have the political will to prosecute its own people? Time will tell.
Sometimes the most serious revelation is that acts of fraud are usually not detected or revealed by auditors. When an incident happens, many questions are asked: “Where were the auditors and why didn’t they do their job right?” Other questions are: “How did it happen?” or “why couldn’t it be prevented or detected by the existing setup of internal controls?” and “What went wrong and were controls being performed the way they were designed?” are all very legitimate and relevant questions that many people skip as they focus primarily on a target to blame. The focus here should rather be on undertaking a root-cause analysis. Auditors should be able to get more involved in getting the right things done and not just rush to hot-spots looking for whom to blame.
Until next week, when we delve into the blame saga, dear bankers, we have a name to protect. The Chartered Institute of Bankers’ motto is ‘Honesty and Integrity’. Let us try and work with it.
To be continued….
About the author
Alberta Quarcoopome is a Fellow of the Institute of Bankers, and CEO of ALKAN Business Consult Ltd. She is the Author of two books: ‘The 21st Century Bank Teller: A Strategic Partner’ and ‘My Front Desk Experience: A Young Banker’s Story’. She uses her experience and practical case studies for training young bankers in operational risk management, sales, customer service, banking operations and fraud.