Banking consultant and corporate governance specialist, Dr. Richmond Akwasi Atuahene, has urged regulators of the financial sector to enforce the law to the letter in order to prevent the current fiasco happening in the sector from repeating in the future.
The Bank of Ghana (BoG) last week revoked the licences of 23 Savings and Loans and Finance House companies for various non-compliance offences committed. This comes after the bank took similar action against seven local banks last year, and 347 microfinance institutions some few months ago, for the same offences. All these happened in the space of one year, and have cost the taxpayer an estimated GH¢20billion to secure customers’ deposits.
It is because of the similarity of breaches committed and same time period within which they happened that Dr. Atuahene is advising the regulator – the BoG – to ensure that lessons are learnt so this doesn’t happen again in the history of the country, considering the impact it has had on the economy and livelihoods of people.
“The lessons are two: we have to strengthen the regulatory framework and build their capacity to meet the current dispensation in the banking system. For example, now a lot of things have turned electronic in the form of apps and other things, is the Bank of Ghana training its staff to find out how solid and robust these electronic systems are?
“Then, after strengthening the regulatory framework, we need to enforce the corporate governance issues. Not everyone should be allowed to be a director or owner of a bank. The person should understand how banking is done. The problem we have in this country is enforcement. We have very good laws, but their enforcement is very bad; so people see a lot of weaknesses in the system and take advantage of them,” he told B&FT in an interview.
According to the central bank, among the reasons the Savings and Loans and Finance House companies had their licences revoked was included insolvency – after a reasonable period within which the Bank of Ghana had engaged with them in the hope they would be recapitalised by their shareholders to return them to solvency.
Secondly, those financial institutions had no reasonable prospects of recovery, and their continued existence posed severe risks to stability of the financial system and to the interests of their depositors.
Again, some of these financial institutions engaged in high risk-taking without the required risk management function to manage risk exposures; used 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.
Furthermore, at the heart of the issue was corporate governance weaknesses – weak board oversight, poor accountability, and override of internal controls; 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.