BoG to tighten supervision on holding companies

0

The central bank has said it intends to expand its supervisory scope to cover holding companies in the financial services space, including those which have subsidiaries in the insurance, pensions and capital market sub-sectors.

Speaking at the official launch of The Beige Bank, central bank Governor, Ernest Yedu Addison, said the decision had become necessary due to co-mingling of transactions across various subsidiaries of holding groups in the financial services industry.

The central bank, he said, will have to identify and assess the group-wide risks which are incorporated into ongoing supervisory work, in compliance with the Core Basel Principles of Effective Banking Supervision.

“We are aware that banks are now driven by the surge for synergy and the desire to provide customers the full spectrum of financial services – including capital market and insurance products and services under one umbrella, in addition to the increase in cross-border and cross-pillar provision of financial services.

“The Bank of Ghana, under the Banks and Special Deposit Taking Institutions Act, Act 930, has the mandate to enforce consolidated supervision of financial holding companies. This will be stepped up in the coming year, to ensure that we can quickly access and mitigate spill-over and spill-back risk within the holding company,” he said.

Since turn of the decade, the financial services industry has seen a surge in financial holding firms offering the full bouquet of financial services: including banking, insurance, microfinance, asset management, brokerage, investment banking and advisory among others.

But Dr. Addison noted that as the banking sector becomes more diversified, it needs strong supervisory regimes that will effectively identify threats and ensure the system’s safety, soundness and stability.

“As a result, the central bank will begin implementing key pillars of the Basel II and III framework for banking supervision next year. These key pillars, together, will enhance the quality of capital and reposition the banks to withstand volatilities and unexpected losses associated with operational risks. The Bank of Ghana will also ensure good corporate governance structures in all banks going forward,” he said.

Apart from capital deficiency and a weak risk management system, he said, weak corporate governance structures also contributed to the failure of some banks.

“Some examples of the poor practices included the co-mingling of the banks’ activities with their holding companies; very high executive compensation schemes; non-executive directors of the bank compromised their independence; interference by non-executive directors in the day to day administration of banks and weakened management oversight by the executive directors; and non-adherence to credit management principles.”

He also mentioned insider and related party deals and transactions, and diversion of funds to holding companies and their related parties, as worrisome practices that must be curtailed.

Leave a Reply