Banking all over the world is one industry that is heavily regulated and supervised. A little mishap in the banking front can have such a reverberating effect on industries and can bring a whole nation to its knees.
Economic recessions can have its roots from happenings in banks and therefore regulators are very keen to nip in the bud any activity that could threaten the stability of the financial sector. In order to control the effects of problems that banks can have on the national economy and international trade world bankers and regulators met in the Swiss city of Basel to craft regulations to govern the operations of banks worldwide. These meetings culminated in what have come to be known as The Basel Accords.
The Basel Accords are three series of banking regulations set by Basel Committee on Bank Supervision (BCBS). They are designed to ensure that financial institutions have enough capital on accounts to meet obligations and absorb unexpected losses. These accords were developed over several years beginning from the early 1980s. The BCBS was actually founded in 1974 and has provided a framework for bank supervision since.
The latest Accord known as Basel III was agreed in November 2010. Basel III required banks to have a minimum amount of common equity (Capital) and a minimum liquidity ratio (minimum cash or very near cash holdings).
The collapse of Lehman brothers that led to the world financial meltdown necessitated the review of the Accord to consider corporate governance and risk exposure management, inappropriate incentive structures, overleveraged banking and stricter compliance. National central banks were mandated to roll out these reforms and ensure strict compliance by end of 2015 however this deadline has been extended to January 2022 to enable countries with weak structures the opportunity to be in line with the world banking communities.
The Bank of Ghana has from the day they assented to the Basel Accords sought to deregulate the banking sector and institute reforms to improve the Ghanaian standards to par with international standards. The Banks and Specialized Deposit-Taking Institutions Act, 2016 ACT 930 sought to “regulate institutions which carry on deposit-taking business, and to provide for related matters”. This act empowers the BoG to regulate and bring in reforms that would sanitize the Ghanaian banking sector and bring it to par to international standards.
These are the basis upon which the BoG has since 2015 sought to increase the capital of banks in Ghana to GHC 400 million by the close of December 2018 and to enforce good corporate governance.
So, in all of these why have some banks failed to adhere to the above directives especially of the Basel III conditions and have thus been forced into liquidation? And why were all these liquidated banks Ghanaian owned? What have the foreign owned banks been doing right to survive that their Ghanaian counterparts failed to do? Various reasons have been adduced or given by the BoG in their official communique. But the following are my unscientific views that I believe contributed to, and continue to contribute to, the inability of Ghanaian banks and other corporate entities to either fail or break out unto the international scene.
Infusion of capital by parent banks to meet requirements
When the new enhanced capital requirements for universal banks were announced and implemented by the Bank of Ghana most of the foreign owned banks got new capital injection from their parents’ banks. Some of these came in as loans to be repaid and others as new equity to increase their shareholdings. However, it was very difficult for Ghanaian owned banks to have such fresh capital from their shareholders most especially the largest shareholders. Some of the banks did not even have enough surplus to even transfer or were not well placed to attract other investors to pump in fresh capital.
Adherence to strict good corporate management
Most of these collapsed banks had questionable corporate governance and risk management structures. A lot of the CEOs of these banks were either not in control or had too much power vested in them that other employees were afraid to counter them or offer any meaningful ideas. Some of these banks had owner-CEOs who had limited knowledge of banking and did not see it fit to engage experienced bankers to manage for them. Some of these CEOs also wielded too much power to easily fire and hire staff. Employees who were afraid to lose their employments just kept quiet or pretended they were unaware off the unsound bad banking practices happening in their various banks (remember the unemployment situation in Ghana). Some heads of department even though saw what was going had no power to stop it. It is said those brave enough to voice out their observations were either sidelined or reassigned to positions or duties designed to humiliate them.
Active and sometimes activist shareholders that analyzed financial reports and asked questions
The foreign banks had a lot of investors who were interested in the growth and sustainability of their banks and investments. However, their Ghanaian counterparts were owned mostly by families or few friends who put up funds to launch the banks. Most of the shareholders were also directors of same banks. It is even reported one of these collapsed banks put together an elaborate scheme where funds were transferred to partners account for account statement to be printed and thereafter these funds were reversed into their original account.
Thus, the bank was started with no real capital. In some off these it looked as if Annual General Meetings were choreographed and no external shareholders had any real opportunity to ask deeper questions as to how their banks were being managed. Some management were able to engage in creative accounting in order to create as much profit as possible to declare high share dividends. As can be seen from the reports of BoG most off these collapsed banks had fewer than 10 large shareholders who controlled over 90% of the total shares.
Strong Management Structures
Every organization needs a strong and independent management staff who are not afraid to offer alternative ideas to what the Board or the CEO puts forward, or are able to resist bad decisions of top management. When other management members owe their positions to their managing directors or board chairs but are not appointed based on merit, they become afraid to resist bad decisions lest they lose their positions. It is said in some of these banks one dares not resist instructions from the managing director who wields such enormous power because he is a family member of the founder. In another the manager was manager just in name as the shots were given by the chairman and owner of the bank.
However, in the foreign owned banks proper management structures are put in place and as much as possible family influence are nipped. Some of them are also listed on the stock exchange and cannot afford to flout good corporate management procedures.
Strong independent non-executive directors
It is an open secret strong independent non-executive members on a board are able to hold management and executive board members in check. This stops them from taking certain decisions that could be counterproductive. Non-executive directors, also known as external directors, independent directors or outside directors, are put in place to challenge the direction and performance of a company as well as its existing team. Since non-executive directors do not hold C-Level managerial positions, they are thought to understand the interests of the company with greater objectivity than the executive directors, who may have an agency problem or conflict of interest between management and stockholders or other stakeholders (Investopedia).
However, in most of these banks that failed these so-called independent non-executive directors were not strong enough to provide the buffer to the executive directors and C-Level management. This is because some of these were handpicked by their benefactors to be on the board and so were beholding to them. There are reports of few of such directors who are just family members of the founders of these banks.
Employees are encouraged to open up
In banking no decision can be implemented by just one person. Even if the decision is taken by one person it would need more than one person to implement or input them into the software stream. Flowing from this the bad banking practices that characterized these banks were noticed by staff who should have been able to raise objection or blow the whistle. However, most of these staff kept quiet for fear of being victimized and losing their positions with their accompanying pecks. Speaking to one management staff who was affected and is now unemployed he said who were we to blow the whistle to when BoG supervision department come, they pass everything. Our hands were tied giving the high unemployment situation in Ghana.
The writer has extensive experience in Rural Banking in Ghana. He is a researcher in current trends in Human Resources Development and Rural Banking. He may be reached on firstname.lastname@example.org