The Bank of Ghana has advised regulated financial institutions to have adequate policies and procedures for identifying, assessing, measuring, evaluating, monitoring, reporting, and controlling or mitigating country risk and transfer risk on a timely basis. This advice aims to avert potential defaults or deterioration in credit quality of foreign counterparties arising from country-specific macroeconomic, fiscal, political, or financial sector conditions. The directive is part of the Credit Risk Management Directive for all banks, savings and loans, finance houses, and financial holding firms.
The directive emphasizes the importance of robust credit risk management processes, including strict policies to avoid association with individuals involved in fraudulent activities or other serious financial crimes or misconduct. Financial institutions are required to employ due diligence measures, such as obtaining references from known parties, accessing credit reference bureaus, and verifying the integrity, experience, and financial condition of individuals responsible for managing a company.
The Bank of Ghana has also outlined specific requirements for credit appraisal and approval. Financial institutions must establish sound, well-defined credit-granting criteria for approving credit in a safe and sound manner. The criteria should specify eligible borrowers, types, amounts, and tenors of credit, and terms and conditions under which credits may be granted. Additionally, financial institutions must undertake comprehensive credit risk assessments proportionate to the nature, type, and size of the exposure.
The directive also covers exposures to individuals, requiring financial institutions to consider the purpose and structure of the exposure, sources of repayment, and the borrower's current risk profile. The Bank of Ghana will begin implementing the Credit Risk Management Directive for all banks, savings and loans, finance houses, and financial holding firms from July 1, 2027. The objective is to enhance the resilience of regulated financial institutions by ensuring they establish and implement adequate credit risk management systems.
The Bank of Ghana has cautioned financial institutions against introducing or implementing new products, market entries, or delivery channels without obtaining the required regulatory approvals. The directive aims to promote a safe and sound financial system, and the Bank of Ghana will monitor compliance with the new regulations. The implementation of the directive is expected to improve the overall stability of the financial sector.
The Credit Risk Management Directive is part of the Bank of Ghana's efforts to strengthen the financial sector and promote financial stability. The directive is also expected to enhance the resilience of financial institutions and improve their ability to manage credit risk. The Bank of Ghana has emphasized the importance of effective credit risk management in preventing financial crises.
The implementation of the Credit Risk Management Directive will begin on July 1, 2027, and financial institutions are expected to comply with the new regulations. The Bank of Ghana will provide guidance and support to financial institutions during the implementation phase. The directive is a significant step towards promoting financial stability and enhancing the resilience of the financial sector.
Key points
- The Bank of Ghana has advised financial institutions to have adequate policies and procedures for managing country risk and transfer risk.
- The Credit Risk Management Directive will be implemented from July 1, 2027.
- The directive aims to enhance the resilience of regulated financial institutions and promote financial stability.
