ONCE UPON A TIME: the relevance of history in risk management (final)

ONCE UPON A TIME: the relevance of history in risk management (final)
Alberta Quarcoopome

Welcome to the concluding article of this series. As indicated earlier, this series was first published in 2014, at a time which the biggest bank scandal was the closure of Ghana Cooperative bank and Bank for Housing and Construction in 2000. This last article is an update of what has happened as we saw history repeat itself yet again between 2017 and 2019! Did I see the writing on the wall? Yes, I did. Do we really learn lessons from our past? Sometimes.

2013 – Collapses of various Microfinance Institutions

There have been numerous cases of runs on MFIs which eventually made them bankrupt.  2013 witnessed unprecedented collapses of thirty micro-finance businesses in the country as a result of their inability to sustain their operations. Customers with huge deposits with those institutions could not get a refund, as the owners could not be traced, or where they were traced, they failed to raise the requisite funds to pay the customers.

New Regulations

An asset quality review carried out by the BoG in 2015 and 2016 revealed severe challenges with solvency, liquidity and asset quality in Ghana’s banking industry, with some banks showing significant under-provisioning and capital shortfalls.

The Bank of Ghana started a sanitization of the banking sector through the effecting of some major Regulations. In 2016, the Banks and Specialized Deposit-taking Institutions Act 930 was established, followed by the CGD- Corporate Governance Directive in 2018.

In further moved to strengthen the sector in September 2017 with a new minimum capital requirement, in which all universal banks were required to increase their minimum paid-up capital to GHS400m by December 31, 2018.

August 2017- Revocation of UT and Capital Bank banking licenses

As a result of the deterioration of the health of some banks, the Bank of Ghana stepped in to revoke the licence of two indigenous banks, UT Bank and Capital Bank. The reasons assigned in the statement to the public read: “The Bank of Ghana has approved a Purchase and Assumption transaction with GCB Bank Ltd that transfers all deposits and selected assets of UT Bank Ltd and Capital Bank Ltd to GCB Bank Ltd. This action became become necessary due to severe impairment of their capital”.

August 2018 – The Massive Shake-up/Sanitization

Roughly after a year later, on August 1, 2018, the BoG announced the consolidation of five indigenous banks to form a new bank called the Consolidated Bank Ghana LTD. The five collapsed banks included Unibank Ghana Ltd, The Royal Bank LTD, Beige Bank LTD, Sovereign Bank LTD, and Construction Bank LTD. The same reason of insolvency was cited as a cause of the collapse of the various banks. Within a span of two years, about seven indigenous banks have collapsed.

By 2019 the licences of nine banks had been removed by the BoG on the grounds of insolvency. The BoG had also given its approval for three mergers: First Atlantic Merchant Bank with Energy Commercial Bank; Omni Bank with Sahel Sahara Bank; and First National Bank with GHL Bank. Some 16 banks had met the new capital requirement, mainly by securing capital injections or through the capitalisation of surplus income. Five banks secured cash injections from the Ghana Amalgamated Trust (GAT), a group of private pension funds.

Ghana started 2017 with 36 banks, but by 2019 this number had fallen to 23. The BoG’s clean-up of the sector was the primary cause of the market exits, although the 2018 departure of the Bank of Baroda Ghana, a wholly owned subsidiary of the Bank of Baroda India, was the result of the Indian government’s decision to rationalise the overseas operations of Indian public sector banks.

The final outcome of the BoG’s recapitalization process is an industry made up of a smaller number of well-capitalized banks. In addition to universal banks there has been a massive revocation exercise of license of numerous microfinance companies, savings and loans companies, and finance houses since then.

The Reasons – in a Nutshell

The collapse of Banks, MFIs, Finance houses,  Savings & Loans and Fund Management companies due to:

  • Poor credit delivery and monitoring.
  • High Non-Performing loans
  • Erosion of capital, illiquidity & insolvency
  • Mismanagement
  • Mix-match of funds.
  • Bad corporate governance
  • Unethical related party transactions (eg. No/minimum credit analysis of exposures to them, breach of single obligor limit.
  • Frauds and losses by staff and clients/customers.

The Effects of the Revocation of Licenses

  • Inability to honour customers’ demands.
  • Panic withdrawals
  • Takeover by Receivers.
  • Loss of trust & confidence in locally-owned FIs and shift to foreign-owned banks.
  • Reduction in deposits in the remaining local banks & concentration in mobile money transactions.
  • Diversion of funds by borrowers and non-repayment of loans granted.
  • Eventual refund of depositors’ funds by Receivers.
  • Lay-off & loss of jobs of employees of affected financial institutions.

What do you think?

Dear Readers, what do you think? In a nutshell, these are some historical events that proves that bank runs, bank failures and collapses are nothing new. My previous articles highlight the various levels of bank challenges around the world. In most countries, policy makers have responded to banking crises with various interventions, ranging from loose monetary policies to the bail out of insolvent financial institutions with public funds.

Just take a look at the Ghanaian scene between 2017 and 2019, and compare it with the global financial meltdown of 2008.  When in the 1990s, I had a chance to visit the New York Stock Exchange, Wall Street and other finance houses in USA, I felt that they were the ultimate places to work, as a young banker. Look at the “Big Names” in investment banking. Where are they now? Just read some more details of the causes of the closure of BCCI (Bank for Credit and Commerce International) which was labelled as the largest bank fraud in world financial history.

Details revealed fraud and collaboration with top leaders and politicians around the globe. Nobody is immune to the people risk. It may be a good reminder to go back and read my series on “The Betrayal of Trust- the People risk in financial institutions”.

The Role of the Chartered Institute of Bankers – Code of Ethics

The Chartered Institute of Bankers, Ghana, as stated in Section 2 of the Chartered Institute of Bankers Ghana, Act 2019 (Act 991) is mandated to promote the study of banking and regulate the practice of the banking profession in Ghana.

As the custodian of the Code of Conduct in the Banking Industry, the Act re-emphasizes the mandate of the Chartered Institute of Bankers, Ghana to continue to play its monitoring role of ensuring that members display the highest standards of professionalism and commitment to ethical conduct and utmost due care in all dealings.

It is therefore expected that the banking industry will continue to witness great transformation in the professional conduct of practitioners which would result in the improvement of corporate governance issues and ethical behaviour.

Is history still relevant to us?

As human as we are, we are all at fault, but can we sometimes take a break and read about our past. What do the life of our heros and heroines in various disciplines teach us?  They all faced risks and managed it to an appreciable level. If you are not yet in a position of leadership, it is never too early to learn how to work hard and progress with integrity. You may be faced with difficult decisions. However, it is about knowing your values and being willing to stand by them even when it is not popular or may cost you in the short term.

Let us imbibe good knowledge about certain facts that are not usually taught in Business Schools –“ The writings on the wall”. They are the unwritten words in business which need to be told in one way or other, for all bankers to be more risk conscious and notice the signals when their financial institutions are in distress. Perhaps a stitch in time, may prevent a run on your bank, or even a collapse. I pray that we all learn from past mistakes and make banking better and more rewarding. As my Nigerian friends will say “Tofiakwa!’ or simply “touchwood’.

For more insights into operational risk management, frauds and other relevant experiences, please book a copy of my new book, “THE MODERN BRANCH MANAGER’S COMPANION” which involves the adoption of a multi-disciplinary approach in the practice of today’s branch management. It also shares invaluable insights on the mindset needed to navigate and make a difference in the changing dynamics of the banking industry. Call 0244333051 for your copy.


Alberta Quarcoopome is a Fellow of the Institute of Bankers, and CEO of ALKAN Business Consult Ltd. She is the Author of Three books: “The 21st Century Bank Teller: A Strategic Partner” and “My Front Desk Experience: A Young Banker’s Story” and “The Modern Branch Manager’s Companion”. She uses her experience and practical case studies, training young bankers in operational risk management, sales, customer service, banking operations and fraud.


Website www.alkanbiz.com

Email:alberta@alkanbiz.com  or [email protected]

Tel: +233-0244333051/+233-0244611343


Leave a Reply