9TH ANNUAL GENERAL MEETING OF GHANA ASSOCIATION OF SAVINGS
AND LOANS COMPANIES
ADDRESS BY
MRS. ELSIE ADDO AWAZDI
SECOND DEPUTY GOVERNOR
BANK OF GHANA
THE COCONUT GROOVE REGENCY HOTEL, RIDGE, ACCRA
JUNE 20, 2019
Mr. Chairman,
Executives of the Ghana Association of Savings and Loans Companies
(GHASALC),
CEOs/Managing Directors of Member Institutions, and other financial
institutions,
Executives of other industry associations,
Invited Guests,
Distinguished Ladies and Gentlemen,
1. Good Morning and thank you for the opportunity to join you at this 9th Annual
General Meeting of the GHASALC. Almost a decade after its establishment,
this Association has become a recognised voice for its member institutions,
and we at the Bank of Ghana always welcome the opportunity to dialogue
with GHASALC and its membership.
2. The chosen theme "Business Sustainability: A Shared responsibility" could not
be more appropriate in the times we are in. Sustainability of businesses is
critical, if we are going to achieve the socio-economic growth we need to
move this country forward. Savings and loans companies, like other deposit-
taking institutions, exist to intermediate savings in order that businesses and
other economic actors can obtain access to much-needed funds to meet their
legitimate needs. Savings and loans companies are therefore a major enabler
of sustainable businesses and must understand how this role, if well played,
can provide a boost for overall socio-economic growth and development.
What is more, I need not remind you that savings and loans companies are
themselves businesses and must therefore be sustainable in order to be able
to support their customers and the entire economy. As a nation, the future of
our economy and the wellbeing of our people depends to a large extent on
the safety and soundness of individual financial institutions, and by extension,
the sustainability of the whole sector. It is therefore imperative that we
stakeholders work together towards building strong and sustainable financial
institutions for our common good as a people.
3. We have unfortunately seen the recent demise of a number of banks and
microfinance institutions, owing to weak capitalisation,
unsustainable business
models, poor corporate governance, poor compliance with regulatory
requirements, default on contractual obligations, among others, that
ultimately led to their insolvency and eventual collapse. Let me be clear that
businesses fail for all kinds of reasons, but the weaknesses I have outlined
above undoubtedly leave any business vulnerable and unable to withstand
shocks, making collapse inevitable. Indeed, several corporate failures around
the world have been associated with weak compliance. Examples of failed
businesses, such as the Medici Bank that collapsed in Italy in 1494, the failure
of over a thousand savings and loans companies in the United States in the
1980s and 1990s, the failure of the Bank of Credit and Commerce International
in 1991, Barings Bank in 1995, and more recent banking failures in the U.S, the
EU, and Nigeria, were all associated with poor corporate governance and a
culture of weak regulatory compliance. For financial institutions especially,
trust and confidence are critical and once lost, business sustainability becomes
difficult. As the saying goes, trust comes on foot but bolts on horseback.
4. The focus of this AGM on building sustainable businesses, is therefore timely.
Now is a good time to assess the current state of the Savings and Loans (S &
L) subsector, with the view to building sustainable business models to the
benefit of all stakeholders and the broader economy.
5. Ladies and Gentlemen, as I said earlier, financial intermediation is central to
economic growth and poverty alleviation. This intermediation role is played by
both the banking sector and other savings and deposit taking institutions in
the economy. Within our financial sector, S & L companies and other lower-
tier financial services companies are expected to provide financial access to
the rather large informal sector which is mostly characterized by the
unbanked and underserved population. Financial access to this segment of the
society not only helps in improving livelihoods, but also contributes positively
to the sustainable development of the country.
6. Within the Ghanaian context, therefore, the potential role of S&Ls in financial
intermediation cannot be overemphasized. It is however important to note
that intermediation thrives on trust and confidence in the financial system.
The security of funds entrusted to all financial institutions demands that they
are governed and managed in a sound and prudent manner to preserve the
confidence of depositors and investors. This also implies that all deposit taking
institutions must adhere to good corporate governance practices and build
strong risk management systems to safeguard the stability of the financial
sector.
7. Mr. Chairman, Ghana's Savings and Loans sub-sector is made up of some 39
companies as at the end of March 2019, and dominates the Specialised
Deposit-Taking Institutions (SDI) sector, accounting for 44.6 percent of total
SDI assets. In March 2019, total assets of the sector increased to
GH¢7,977.63 million, up from GH¢6,548.63 million a year earlier.
8. Mr. Chairman, despite the growth in total assets, some S & L companies
continue to be faced with poor asset quality, solvency and liquidity challenges.
Indeed, as regulators, we have observed some worrying trends which require
the attention of all stakeholders. In addition to liquidity and solvency issues,
several financial soundness indicators of the industry have adversely deviated
from accepted statutory and prudential benchmarks. These outcomes are
primarily due to the business models adopted by some (not all) S&Ls, by
essentially attracting term-deposit funding at unsustainably-high costs and
deploying such funding into risky assets without adequate risk management
systems to manage and monitor the inherent risk exposures. Poor credit
underwriting practices, poor loan recoveries, insider dealings and related party
transactions, weak governance and concentration in ownership structures
among others, have all contributed to the capital illiquidity and solvency
challenges in the S&L sector.
9. What is more, some institutions within the S&L sub-sector shifted from
financing the lower-tier retail end of the market towards financing the
wholesale end, or simply placing funds with other S&Ls. These practices have
increased concentration risks in the sector, which impact negatively on
financial stability.
10. Given these challenges in the sector, I must commend the GHASALC for
spearheading efforts to re-evaluate and realign the business models of its
member institutions, at this Annual General Meeting. This will help improve to
reposition the sector and regain the trust and confidence of the public.
11. I urge the Executives of this Association to continue to lead the process of
reengineering this sector, and in so doing, to help to refocus the business
models of its members towards realigning themselves with the policy
objective of financial inclusion for which savings and loans licences were
issued. I would also urge you to collectively work towards finding the balance
between profit-making and protection of depositor funds, underpinned by
strong corporate governance, prudent business practices, and high ethical
standards. Investments in appropriate technology and good human resources
are also critical to helping the sector reposition itself to drive financial
inclusion, improve efficiency and lower transaction costs for S&Ls and their
customers.
12. Ladies and Gentlemen, it is only such steps are taken that we can expect
to see a sustainable savings and loans sector, as well as a sustainable private
sector supported poised to be the engine of Ghana's socio-economic growth
and development.
13. Distinguished Ladies and Gentlemen, making the Savings and Loans sector
sustainable is indeed a shared responsibility and we must all work to improve
the sector's performance within Ghana's financial structure. As your regulator,
the Bank of Ghana remains committed to ensuring that S & L companies are
safe and sound, and that together the sector as a whole is resilient and does
not pose risks for the wider financial system. We count on the support of the
Association as we take steps in this direction and we will continue to dialogue
with the Association to explore how this sector is repositioned going forward.
14. On this note, let me thank you all once again for the invitation and wish
you fruitful deliberations at the Annual General Meeting.
15. Thank you for your kind attention.