The Governor of the Bank of Ghana, Dr Johnson Pandit Asiama, has attributed the collapse of local banks during the recapitalisation exercise to issues relating to risk management frameworks. This was stated during the 132nd Monetary Policy Committee press conference in Accra on Thursday, September 4. Dr Asiama emphasised that the current leadership at the central bank has been stressing the importance of risk management frameworks for banks.
According to Dr Asiama, the Banking Supervision Division of the BoG has issued several directives to local banks regarding risk management. He noted that the reasons for the collapse of banks in the past were largely related to their risk management frameworks. This, he said, is why the central bank is currently placing greater emphasis on this aspect. The BoG has issued guidelines to ensure that banks have a robust risk management framework in place.
In 2018, some local banks collapsed when the central bank revised the minimum paid-up capital for existing banks and new entrants from GHS120 million to GHS400 million. The regulator aimed to test the viability of the banks through this exercise. Banks that were unable to meet this new requirement were either merged or collapsed. A total of nine local banks, 23 savings and loans companies, 347 microfinance institutions, 39 finance houses, and 53 fund management companies closed down during the exercise.
The banks that collapsed included UniBank, The Sovereign Bank, The Beige Bank, Premium Bank, The Royal Bank, Heritage Bank, Construction Bank, UT Bank, and Capital Bank. Some analysts and observers criticised the Bank of Ghana and the Finance Ministry over the collapse of the banks, arguing that they could have been saved to continue employing Ghanaians. The collapse of these banks had significant effects on the banking sector and the economy as a whole.
Dr Asiama also expressed concerns about the current state of the banking sector, where over 60 per cent of total bank assets accrue to foreign-owned banks. From a strategic point of view, this may not be optimal, and the central bank wants to see local banks increase their participation in the sector. The BoG is committed to ensuring that local banks are able to thrive and compete with foreign-owned banks.
To achieve this goal, the BoG is emphasising the importance of risk management frameworks and has issued guidelines to support local banks. The central bank wants to create an environment where local banks can grow and develop, increasing their contribution to the country's economy. This, Dr Asiama believes, will help to promote economic growth and development in Ghana.
The Banking Supervision Department has issued a number of guidelines to support local banks in this regard. The central bank will continue to monitor the banking sector and provide support to local banks to ensure that they are able to operate effectively and efficiently. The goal is to promote a stable and robust banking sector that can support the country's economic growth.
Key points
- Risk management framework issues led to the collapse of local banks during recapitalisation exercise
- Nine local banks collapsed in 2018 due to inability to meet revised minimum paid-up capital requirement
- BoG aims to promote local banks' participation in the sector, currently dominated by foreign-owned banks