ANNUAL DINNER OF THE
CHARTERED INSTITUTE OF BANKERS (GHANA)
ADDRESS BY
DR. ERNEST ADDISON
GOVERNOR, BANK OF GHANA
ACCRA MARRIOT HOTEL
DECEMBER 01, 2018
Madam President of the Chartered Institute of Bankers,
President of the Ghana Association of Bankers,
Executive Secretary of Ghana Association of Bankers,
CEOs of Banks,
Colleague Bankers and Banking Students,
Invited Guests,
Members of the Press,
Distinguished Ladies and Gentlemen
1.
Good evening. All too soon, a year has passed by and we are
once again gathered for this special occasion which brings
together all the distinguished professionals in this very unique
profession. Thank you for the invitation to this dinner and to
address the Institute of Bankers at the end of a week-long of
activities marking "Bankers" week. It has now become a tradition
for the Governor of the Bank to talk about the developments in
the banking and financial sector, the economy and the outlook
for the ensuing year, and I will like to continue that tradition
tonight. This will be the second time that I am doing so.
2. We thank the Almighty God for seeing us through another year
where we have worked together as stakeholders to shape the
future of banking in our dear nation. A lot has been achieved
and a lot more remains to be done to position the banking sector
as the catalyst for the accelerated socio-economic growth that all
Ghanaians desire.
3. Let me take the opportunity to welcome new members of our
fraternity. In particular, I welcome Consolidated Bank Ghana
Limited, and all new or incoming Managing Directors, Executive
and non-Executive Directors, and senior management. We say
Akwaaba and we look forward to you playing your part as we
together build this industry for future generations. To the
outgoing executves or officers, I say Ayeekoo for your
contributions to the industry and we wish you well in your future
endeavours.
4. Madam President, our industry is one of the key pillars essential
to the realization of the high aspirations for development of the
Ghanaian people. The sustainability of the banking industry is
critical to the vision. As such, all stakeholders must work to
ensure that banks operate within an enabling environment that
supports them to carry out their financial intermediation
function.
5.
Madam President, a year ago when I first addressed this
gathering, we were faced with many challenges in the financial
sector and had begun a process of introducing reforms that
would be needed to build resilience. The reforms aimed at
strengthening the sector to become strong, solid, well
capitalised, and better positioned to support a fast growing
economy. Madam President, as expected, these reforms
continued into 2018, as we sought to also overhaul the entire
supervisory framework.
6. Madam President, the financial systems stability remains central
to the development agenda of the country. Historically, central
banks used the lender of last resort function as the principal tool
to ensure stability. Today financial stability goes beyond the
lender of last resort function. Indeed financial stability and
monetary policy are complementary as without financial stability,
monetary policy impulses to the economy cannot be transmitted
to the real economy. In Ghana, the central bank is mandated
under its laws; the Bank of Ghana Act, 2002 (Act 612) as
amended by Act 918 of 2016, and the Banks and Specialised
Deposit-taking Institutions (BSDI) Act, 2016 (Act 930) to ensure
a safe and sound financial sector.
7.
Madam President, we inherited a financial system which was
under a considerable state of distress, with banks that were not
meeting capital adequacy requirement, banks that had suffered
capital erosion with high non-performing loans which had led to
a weak transmission of monetary policy to the real economy.
Some of these banks were insolvent and illiquid, others were
solvent but illiquid. Our predecessors continued to provide
liquidity support to these weak failing banks, without addressing
the underlying problems that led to the illiquidity and insolvency
of these institutions. In short, the financial system had reached a
tipping point and we could not just have assumed business as
usual. The cleaning up objective was to ensure the orderly exit
of insolvent banks from the industry with the view that any bank
licensed and regulated by the Bank of Ghana is guaranteed to
access your deposits when you need them and not to victimize
wholly owned Ghanaian entities as our detractors sought to
impugn. The reforms were also aimed at addressing the legacy
problems in the banking sector such as the poor corporate
governance, false financial reporting, and insider dealings, and
other practices that left some banks insolvent.
8.
Madam President, we took decisive actions underpinned by a
strengthened legal framework under the Bank of Ghana Act,
2002 (Act 612) as amended by Act 918 of 2016, and the Banks
and Specialised Deposit-taking Institutions (BSDI) Act, 2016 (Act
930). We closed a total of seven insolvent banks, and protected
depositors' claims by the government to ensure that the rest of
the banking sector did not suffer contagion.
9.
There is no doubt that the failure of the seven banks came at a
cost to the Ghanaian taxpayer, staff of the affected banks, and
to an extent, shaked confidence in the financial sector. However,
the decisions we took as a regulator protected the deposits of
more than 1.5 million customers with deposit values of over
GH¢10 billion. Additionally, the orderly intervention and
revocation of these licences and the purchase and assumption
transactions that ensued minimized the potential adverse
impacts by ensuring that about 70 percent of the 5,000 jobs in
the affected banks were saved. This would be contrasted to
what could have been the imploding of these banks and the
contagion that could have resulted.
10.
Madam President, lessons learnt so far from the resolution
experiences within the past two years have helped shape the
reforms that are being introduced in the sector. What has
become very clear is the need for more regulatory and
supervisory vigilance to properly safeguard the new banking
system after the reforms.
11.
Madam President, one key lesson learnt was the level of
related-party transactions that have become so endemic in the
banks that were resolved. This has informed our decision to
operationalize, in 2019, the directive on financial holding
companies which seeks to facilitate effective consolidated
supervision of regulated financial institutions and ensure that
holding companies and affiliates of banks and SDIs do not take
advantage of banks and SDIs within such groups at the expense
of depositors and other creditors. In addition, the government
has indicated that it will set up a high-level financial stability
council with a key objective of bringing together all financial
sector regulatory bodies and the Ministry of Finance to work
together to minimize, if not eliminate, regulatory arbitrage and
other sector-wide risks.
12. Another key lesson was the weaknesses in the corporate
governance structures in some banks. Earlier this year, we
issued the corporate governance directive to address the
fundamental flaws observed in the governance process drawing
on international corporate governance principles developed by
the Basel Committee on Banking Supervision. We have received
feedback several comments from some of you on the draft
Transitional Provisions for implementation of the directive. We
will finalise these provisions and public a final version by the end
of 2018.
13.
We have also introduced the Fit and Proper Person's
Directive which aims to reinforce provisions in the corporate
governance directive, especially in respect of whether a person is
fit to be a director, a significant shareholder, or a key
management personnel in a regulated institution. Our initial
assessment shows that these directives are already shaping the
corporate governance structures within the banking industry as
we continue to ensure full compliance.
14. The industry's effort at reducing the high levels of non-
performing loans is gradually taking shape, partly due to
compliance with the loan write-off directive. We expect further
improvements in asset quality with the appropriate disclosures of
loan write-offs in banks' year-end published financial statements.
The draft Credit Reporting Regulations and the draft Borrowers
and Lenders Bill are in their final stages. When completed and
passed by Parliament, these pieces of legislation should help
improve the credit underwriting process and facilitate
enforcement of loan and collateral agreements by banks and
other regulated institutions.
15.
Madam President, banks have adopted and are implementing
the global credit risk management and financial reporting
standards. Currently, the quarterly financial publications of banks
are reported in line with IFRS 9, using the expected credit loss
standard. This is improving on credit risk management
frameworks and enabling banks effectively measure risks
embedded in their credit portfolio. The full impact and benefits
of this new standard in our credit administration process is
expected to materialise in the coming year.
16. To improve on the compliance and risk governance within the
banking sector, the Bank of Ghana during the year issued the
final Capital Requirement Directive for compliance which
will become effective in January 2019, coinciding with the
completion of the increased minimum capital requirement for the
industry. Banks are currently in the parallel-run phase which
ends in December 2018. The Banking Supervision Department is
working with the industry to ensure that all the challenges faced
by banks are resolved for a smooth transition to the full
implementation of the Basel II/III pillar 1 capital measurement
(capital adequacy).
17.
Madam President, the fight against financial crime in our
industry and the entire financial system received a major boost
this year when the central bank in collaboration with other sector
agencies of Government, launched the Cyber and Information
Security Directive (CISD), and also opened the Bank's
Security Operations Centre (SOC), during the National Cyber
Security Awareness Month celebrations in October. Among
others, the CISD provides a framework for establishing cyber
and information security protocols, establishment of reporting
mechanisms and physical security measures for IT Data centres
and control rooms, and assurance of data and network security.
The directive contains an implementation schedule for banks and
other regulated institutions to follow, which is currently being
monitored by the Bank.
18. In addition, there is a guide to Enhanced Competency
Framework (ECF) towards the building of cyber security
competencies for industry players and I will encourage you to
implement this framework as we work towards having effective
cyber security controls in place to counter cyber and financial
crime.
19.
Madam President, the Bank of Ghana has provided the
needed resources for the take-off of the Ghana Deposit
Protection Corporation (GDPC). Under the Ghana Deposit
Protection Act, 2016 (Act 931), as amended, the Ghana Deposit
Protection Scheme will be operational in or before September
2019. Banks and SDIs will be onboarded and will start
contributions to the scheme by September 2019. During the
year, the GDPC actively engaged various stakeholders to create
public awareness of their operations and the expected role of
banks, SDIs and the microfinance institutions to be enrolled in
the scheme. The GDPC would continue to engage the industry
and the general public to ensure smooth take-off in September
2019.
20. Madam President, as you will recall, about a year ago, we
announced an increase in the minimum capital requirement for
all universal banks to GHC400 million by end December 2018. A
few people have wondered why the increase, but we all know
that the more capital a bank has the safer it is. Bank owners
want to have less capital and instead borrow more in what is
called leverage to earn a greater return on their investments and
using less of their own money. The most a bank owner loses in
the case of a bank run is their capital but the wider public loses a
lot more. It is therefore important we set the capital level in the
banking sector to minimize the cost to society of a bank failing
while ensuring the banking system also remains profitable. It
remains our view that this new capital floor will help make banks
stronger and resilient and position them to better support the
Ghanaian economy. With a few days to end the year, the Bank
of Ghana has been reviewing the capital build-up plans of banks,
providing guidance to banks opting for mergers and acquisitions
and voluntary liquidations through the issuance of the Mergers
and Acquisition Directive and the Directive on Voluntary Winding-
up respectively. I am happy to inform you that significant
progress has been made in this area and as at November 2018,
we can confidently say that about twenty-two (22) banks have
either met or in good standing to achieve full compliance with
the new minimum capital requirement. We have therefore
intensified monitoring of the process as we bring closure to the
recapitalisation process on December 31, 2018.
21. Recent developments in the banking sector reflect gains from
the on-going reforms in the sector, which are expected to further
increase after the recapitalization process is completed in
December 2018. In addition to making profits, banks now have
more assets with capital adequacy ratios well above required
regulatory levels. It is therefore not surprising that the improving
banking sector stability partly accounted for Standard and Poor's
recent upgrade of Ghana's long-term rating to 'B' from 'B-' with
stable outlook.
22.
Ladies and gentlemen, while acknowledging that some critical
issues remain to be addressed; our economy has witnessed a
significant turnaround in the macro indicators. The restoration of
macroeconomic stability should provide some basis for improved
financial intermediation to boost economic activities in the near-
term.
23. The stable macroeconomic environments occurred on the back
of strong fiscal consolidation and prudent monetary policy
providing an anchor to the disinflation process. In particular,
improvements in interest rates are beginning to impact positively
on availability of credit to households and the private sector to
support growth.
24. In the course of the year, we experienced some headwinds
from external sources on the domestic foreign exchange market,
similar to many emerging markets. In particular, the shift to
monetary policy normalisation in the U.S. led to rising yields and
portfolio reversals especially in emerging markets, which
triggered volatility in most currency markets. To a large extent,
these pressures have moderated and the local currency has been
relatively stable. The BoG will continue to carefully monitor the
external environment and other related factors with the goal of
ensuring stability in the currency.
25.
The gains achieved in macroeconomic stability, together with
implementation of other policy initiatives, will provide some
impetus to economic growth. Banks, therefore, must position
themselves to scale up their support for private sector-led
growth.
What Next for the Banking Industry after Recapitalisation?
26. Madam President, as we take stock of what has become a
very engaging past 18 months, allow me to share some
perspectives on how we see developments in the banking sector
in the coming year:
27. Even though we have made significant strides and seen
improvements in the soundness and stability of the banking
sector, there is still scope for improvement, especially from the
financial sector stability and banking supervision perspectives.
Our collective responsibility is to ensure efficient financial
intermediation in the economy as we continue to provide
assurances to the general public to address some of the
confidence issues that arose during the clean-up. We should
collectively work hard to regain the confidence of the general
public through the introduction of prudent policies, regulations
and procedures to ensure irreversibility of reforms introduced.
28. To this end, the Bank of Ghana will:
● Enforce strict compliance with all Directives, including the
Capital Requirement Directive (Pillar 1) of the Basel II
Accord and the IFRS 9 reporting standard;
● Finalise implementation of Pillar II of the Basel II Accord;
● Fully implement consolidated supervision alongside
revisions to the Bank's Risk-Based Supervision Framework,
● Enhance cooperation with other financial sector regulators
and relevant foreign regulators;
● Ensure that banks develop, adopt, and implement plans to
scale up financial inclusion and sustainable banking efforts
to support the achievement of the Sustainable Development
Goals, deploying emerging technologies on the back of the
new interoperability framework.
29. Underlying the regulatory agenda for 2019 is an approach that
ensures that :
● Shareholders of banks and specialised deposit-taking
financial institutions exercise control over these
institutions not for the benefit of shareholders and related
and connected parties, but primarily in the interest of
depositors, creditors, employees, and other stakeholders;
● Boards are composed of persons that are capable of
exercising the strong and independent oversight they are
expected to ensure that the interests of all relevant
stakeholders are protected;
● Risk management is integrated in the strategic focus of
governance and management of these institutions;
● Compliance with regulatory requirements and ethical
standards are embedded in overall risk management;
● Our supervisory systems, processes, and teams are better
able to identify early warning signs, enforce regulatory
requirements and ensure that prompt corrective action is
taken by banks to recover quickly from any signs of
distress.
30. Madam President, while the recovery in the banking sector is
on-going, pockets of distressed institutions in the Specialised
Deposit-taking Institutions segment of the financial sector are
emerging. These also require full attention, if the public is to
regain trust in the whole financial setup. The Bank is monitoring
these developments and working closely with the Ministry of
Finance on a plan to resolve the issues with a view to restore
trust and confidence in the entire financial system.
31.
Madam President, in concluding, let me reiterate that we have
a collective responsibility as bankers to ensure high ethical and
professional standards in the industry. And, the public is
counting on us to perform this role diligently to restore trust and
confidence. It is my expectation that 2019 will bring good tidings
to our industry, with fewer challenges as we continue to build a
robust and resilient banking industry.
32. Ladies and Gentlemen, thank you all for the attention and I
wish you compliments of the season. Enjoy the rest of the
evening.