KEYNOTE ADDRESS ON THE FUTURISTIC ECONOMY:
TECHNOLOGY-DRIVEN FUTURE OF BUSINESS &
GOVERNANCE FOR ECONOMIC TRANSFORMATION
by
Dr. Ernest Addison
Governor, Bank of Ghana
May 20-21, 2019
Kempinski Gold Coast Hotel
Accra, Ghana
Mr. Chairman,
His Excellency the Vice President,
Chiefs,
Invited Guests,
Distinguished Ladies and Gentlemen.
Let me thank organisers of this Ghana CEO Summit for creating such
a unique platform where over 400 CEOs gather at one place to
discuss issues of relevance to the businesses and the economy in
general.
Mr. Chairman, we at the BoG start a 3-day MPC meeting this week
which we will review developments on the economy and take a
decision on where to place the policy rate. I will therefore not discuss
Monetary Policy today. However, as you all know, in the last two
years, we addressed serious lapses in governance and weaknesses in
the operational efficiency of some banks. The systemic nature of the
infractions put several depositors' funds at risk and weakened public
trust in the industry. We therefore took the challenge, daunting as it
was, to clean the financial sector and safeguard the solvency and
stability of the banking system in particular, and the financial system
as whole, given the interconnectedness of the banks and other
Specialized Deposit Institutions.
The comprehensive set of reforms we undertook were tough but
necessary. Over the period, we have recapitalised the banks and
implemented several regulatory reforms to underpin the stability and
soundness of the banking sector. We now have a well-capitalized,
liquid, solvent and resilient banking sector to effectively execute its
core mandate of financial intermediation within a stable economic
environment.
Given this platform, permit me to enumerate some of the reforms that
have been implemented to safeguard the stability of the financial
sector. These reforms are aimed at ensuring the safety and
soundness of individual banks, aligning macro-and micro-prudential
risks to bank capital and addressing cross-sectoral and cross-border
risks to the industry. In order to address the overall risks of the
industry, and to properly risk-profile individual banks, we revised the
current risk based supervision framework to take account of the
current developments in the global banking environment.
As part of efforts to reduce the level of impaired assets, we have
required that banks help to clean up their books and remove the
structural challenges that undermine the effective credit delivery
process. We have enforced our directive on loan write-off and
require appropriate disclosure of written-off facilities in the published
financial statements of banks.
We reviewed the governing legislations on the credit reference
system to require banks to submit both positive and adverse
information on borrowers to the bureaus through a new portal that
has been developed. The BOG also worked on the collateral
registry system to address some outstanding issues with
foreclosure. We are also supportive of government efforts to enhance
clarity in the land acquisition process which transmits into the
collateral perfection processes for banks. In addition, we are hopeful
that the introduction of the Ghana Reference Rate, Ghana Post GPS
and the national identification program would contribute to the on-
going measures aimed at reducing the incidence of loan defaults.
Mr. Chairman, to fight financial crime means we needed to invest and
strengthen our AML/CFT regime by increasing the scope of AML
risk-based supervision and collaborate with the Financial Intelligent
Centre (FIC), Economic and Organized Crime Office (EOCO) and other
law enforcement agencies to enforce the AML/CFT regulations. As we
work closely with these agencies, the emerging area of crime that
threatens the very existence of financial institutions is cybercrime.
Cyber criminals have managed to bypass security controls and to exploit
breaches or vulnerabilities within the cyber and information security
defenses of financial systems. In this regard, the Central Bank issued a
draft directive on cyber and information security to the banking
industry.
Mr. Chairman, we also issued the final directive of the Capital
Requirement Directive (CRD) which addresses Pillar one (1) of Basel
II/III capital regime. The Pillar II of the Basel accord is expected to
strengthen the supervisory review process. This would involve the
Internal Capital Adequacy Assessment Process (ICAAP) allowing
banks to undertake an assessment of the capital commensurate with all
their risk exposures. We are also driving the disclosure requirements in
conformity with pillar III of the Basel accord to enhance appropriate
information flow to market participants.
The process of fully operationalising the BSDI Act, 2016 (Act 930), is in
progress and will continually reviewing the existing directives and
regulations to align them with the Act. In line with this, we issued the
"fit and proper" directive, financial holding companies and the
mergers and acquisitions directive.
The Central Bank has adopted the accounting standard on financial
instruments (IFRS 9) since January this year. IFRS 9 requires banks
to implement the expected credit loss model for the banking industry.
Though it was expected that the implementation of new model would
increase credit impairment in the banks, the central bank's assessment
of the impact, revealed that increases in loan loss impairment were
largely contained within the regulatory credit risk reserve.
We have started work on addressing the crisis that bedeviled the
industry focusing on enhancing customer confidence in the system. The
implementation of the deposit protection scheme is on-going in
line with the Ghana Deposit Protection Act, 2016 (Act 931) as amended
to provide a safety net for vulnerable depositors in the event of a bank
failure.
Going forward...
The financial sector continues to face some challenges.
First, let me apprise you on issues associated with the just ended
clean-up of the banking sector and the state of the Receivership
process. The process has progressed slowly as out of the total loans of
GH¢10.1 billion taken over by the Receivers, total recoveries so far is in
excess of GH₵ 731 million and this has been achieved through loan
repayments by customers; repayment of placements; sale of vehicles;
liquidation of bonds; and from other incomes sources (largely from
interests on placements and refund of commissions paid). Loan
repayments by customers constitute about 72 percent of the total
proceeds realized.
I am also reliably informed that the Receivers have fully engaged the
judicial system to assist in the recovery of certain assets and monies
from some of the shareholders, directors and other loan defaulters of
these erstwhile institutions, with about 50 cases currently pending
before the courts.
Despite these initial steps, the recovery process, has not been without
challenges, with some individuals involved resorting to the court system
to frustrate the process by engaging in frivolous actions; while low or
poor documentation has also made it difficult for the Receivers to
identify and pursue some of the loan defaulters due to insufficient or
non-existent information. Investigations so far have also revealed that
some of the assets were not registered in the names of the specific
financial institutions but in the names of related or connected parties,
making it difficult to dispose of the underlying collateral to offset the
outstanding loans. Some of these loans were even fictitiously created
and the directors are being pursued to recover such monies.
The Second issue has to do with the high NPLs which is of serious
concern and needs to be tackled with urgency. As regulators, we have
closely monitored the developments in the industry's Non-Performing
Loans (NPLs) and I must say that in spite of the improvements made
through the enforcement of our loan write-off policy, the NPL ratio
remains high at 18.76 percent as at end March 2019. This level by all
measures is not acceptable and more work is needed in this area.
The high NPL situation has implications for the effectiveness of
monetary policy conduct as it acts to impede the transmission
mechanism. Lending rates will continue to remain high in the midst of
high NPLs with implications on how the private sector responds to
macroeconomic conditions in their quest to be innovative and support
the real sector of the economy.
Here, I must say that the role of the judiciary is crucial in the scheme of
things and an efficient adjudication of financial sector court cases would
be needed. In my opinion, designating special courts and judges to
adjudicate matters relating to specific issues arising out of the Bank
resolutions and revocation of licenses given the public interest, and the
enforcement of collateral agreements, will help speed up the process.
Without an efficient judiciary system that is prepared to deal with cases
in a swift and decisive manner, all the work done in sanitizing the
banking system will not yield the desired results/ expected outcomes.
The Bank of Ghana will continue to track the Receivership process to
ensure that resolution process yields the appropriate outcomes.
Before I conclude, permit me also to also commend the organizers of
this year's CEO Summit for a well-timed theme: "The Futuristic
Economy: Technology-Driven Future of Business & Governance for
Economic Transformation". The Bank of Ghana recognises that
technology remains a key driver of financial development in Africa and
that is why we are collaborating with the telecommunications and
financial technology companies (FINTECHS) to enhance the efficiency of
the payments ecosystem and deepen financial inclusion. The successful
implementation of the Mobile Money Interoperability (MMI) project last
year, underscores our quest to leverage on the increasing digital
revolution in the financial sector to broaden access to financial services
for inclusive growth.
The recently-enacted Payments System and Services Act provides
opportunities for innovations that will make our payments system more
efficient and in tune with the rapidly changing means of doing business,
contribute better to improved access to financial services. This new
legislation also presents great investment opportunities particularly in
the fintech space.
The Bank of Ghana will continue to remain vigilant to all forms of risks
and vulnerabilities to the economy and will take appropriate actions to
mitigate them to ensure to ensure continues macroeconomic stability
and financial stability.
I thank you your attention!