ghananlpcommunity/ghana-gov-speeches-sentences huggingface dataset:
Policy makers aroun d the world are working hard to reduce the economic hardship from the pandemic on businesses and households, with stimulus packages that have included unemployment benefits, small business loans, and other cash transfers, while measures put in place by central banks and regulators have also helped to improve liquidity in financial markets.
Some j urisdictions have also introduced amendments to their insolvency laws (see Australia’s Response Act 2020 for example) to help delay triggers for initiating insolven cy proceedings and providing temporary relief to directors from liability for failure to prevent insolvent trading.
The Ghanaian economy has seen a significant slowdown since the onset of the pandemic, impacting negatively on businesses (especially micro, small and medium-sized) and households.
The impact of the pandemic on the Ghanaian banking sector is also evident, as reflected in a dip in profitability due to lower net interest income and higher operating expenses, and an increase in credit risks owing to customers’ inability to service loans.
In addition to fiscal policy measures put in place by Government to cushion the impact of the pandemic on local businesses and households, the Bank of Ghana instituted a number of policy and regulatory interventions including a reduction in its monetary policy rate by one hundred and fifty basis points, a reduction in reserve requirements for banks and specialized deposit-taking institutions (SDIs), a reduction in the capital conservation buffer maintained by banks, a reduction in provisioning requirements for certain categories of loans, and the purchase of Government bonds to support economic recovery efforts.
These interventions have released significant liquidity into our banking system, which has allowed banks to account for restructured customer loans as a result of the pandemic, and grant new loans to customers in industries that have been at the forefront of helping to fight the pandemic.
We have recently issued guidance to the banks and SDIs on the accounting treatment of loan restructuring, classifications, provisioning, and expected credit losses, and prudential assessments of credit risk and capital ratios, as well as approaches to reporting to credit bureaus on loans that have been restructured, to help ensure standard reporting that does not unduly disadvantage the customer.
The Bank of Ghana’s recently -updated Composite Index of Economic Activity and consumer and business surveys show promise for a rebound in economic activity.
The Ghanaian banking sector is also well-situated 3 to help finance the economic rebound we all hope for, thanks to earlier reforms instituted by the Bank of Ghana over the last three years that has strengthened the resilience of the sector.
These are encouraging indicators of the potential for a strong er, more self-reliant and resilient economy post-COVID, with the private sector leading.
Given the Bank of Ghana’s statutory mandate to maintain stability in the general level of prices, promote economic growth and efficient operation of banking and credit systems in the country, and to promote financial stability , we recognize the benefits of a well -designed insolvency regime.
A robust corporate insolvency regime has a critical role to play in facilitating the post -COVID economic recovery, by helping to resolve the inevitable debt-overhang that will be one of the legacies of the pandemic, and by helping to reorganize viable but distressed firms while ensuring the exit of non-viable ones.
Act 1015 will therefore become very handy in the months and years ahead.
If the recent banking sector cleanup is anything to go by, the orderly exit of non-viable institutions from the market place creates room for viable ones to thrive and support the economy better.
The clean -up exercise, which saw the revocation of licences of 420 banks, specialised deposit- taking institutions, and non -bank financial institutions, was necessary to save the financial system from total collapse given the level of interconnectedness in the system.
Of the 420 institutions closed, 379 (9 banks, 23 savings and loans and 347 microfinance companies) are currently being resolved under the special resolution regime established under section 123 of the Banks and Specialised Deposit -Taking Institutions Act of 2016 (Act 930), while 41 NBFIs (39 microcredit institutions, one leasing company, and one remittance company) which were regulated under the NBFI Act of 2008 (Act 774) and are being resolved through liquidation under the now-repealed Bodies Corporate (Official Liquidations) Act, 1963 (Act 180) and Act 1015, following Bank of Ghana’s appointment of the Registrar of Companies as Official Liquidator pursuant to section 7 of the NBFI Act.
Please permit me to shed some light on Act 930, in particular, the framework it establishes for dealing with distressed and insolvent banks and SDIs.
The provisions of Act 930 reflect international consensus that a special regime other than that often provided by corporate insolvency regimes, is needed to deal with weak financial institutions given the special nature of financial institutions.
Shareholders and Boards of banks and other deposit -taking institutions are expected to act quickly to address early signs of distress to mitigate the risk of failure which has ramifications not only for depositors but also for the stability of the entire 4 financial system and the economy as a whole.
The Basel Core Principles require bank supervisory authorities to have adequate legal powers to impose prompt corrective action o n weak institutions to give them a chance of recovery within a reasonable timeframe, failing which they are required to take steps to resolve these institutions under a special resolution regime.
The international standard (as established by the Financial Stability Board in 2011) for resolving failed financial institutions, recommends that jurisdictions should have in place a resolution regime that provides the regulator or resolution authority a broad range of powers and options to resolve a financial institution that is no longer viable and has no reasonable prospect of becoming so, based on clear indicators of non- viability, and before a firm is balance-sheet insolvent and all equity has been fully wiped out.
The regime should provide options for stabilization and restructuring where feasible, as well as for orderly closure and wind- down of all or parts of the firm’s business , in a manner that contains the potential systemic impact of their failure while they exit the market place.
Act 930 , which was designed with technical assistance from the International Monetary Fund, provides the Bank of Ghana powers to require distressed bank s or SD Is to take prompt corrective action to recover from capital or liquidity shortfalls, before they reach 50% of the minimum capital adequacy ratio required to be maintained , or before they default on their obligations to depositors and other creditors.
Once a bank or SDI’s capital falls below 50% of the minimum capital adequacy ratio required to be maintained by law, the Act considers such an institution to be “significantly undercapitalized” and authorizes the Bank of Ghana to place it in official administration, with a view to restructuring it and returning it to full capitalization.
Once an institution has reached insolvency, Act 930 requires a mandatory revocation of licence and appointment of a receiver to take pos session and control of the assets and liabilities of the failed institution, validate claims for payment in line with a hierarchy of claims that is specified under the Act, and complete winding up procedures and dissolution of the entity .
Both the official administrator and receiver appointed by the Bank of Ghana exercise their statutory powers under the Bank of Ghana ’s exclusive oversight , ensuring that the resolution process promote s stability of the financial system.
The Act reflects a careful balance between the rights of shareholders that have failed to take the necessary actions to help their bank or SDI recover from distress, and the overriding public interest in ensuring that the risks posed by such an institution to depositors’ funds and the stability of the financial system as a whole, are mitigated.
5 Act 930 provides restructuring tools (such as mandatory mergers and acquisitions, partial transfers of assets and liabilities, recapitalisation by existing shareholders or by new investors without recourse to preemptive rights of shareholders, mandatory restructuring of claims – the so-called bail-in tool, and others ), designed to help a bank or SDI in official administration return to full compliance with regulatory capital requirements.
It also provides for tools such as the “Purchase and Assumption” (“P & A”) tool in receivership, by which certain liabilities and assets of the failed institution may be transferred to an existing healthy financial institution or to a bridge bank or SDI to allow the assuming institution provide depositors access to their deposits and critical banking services, while the failed institution is wound down.
Thanks to this special resolution regime established under Act 930, the Bank of Ghana managed the orderly exit of nine banks and hundreds of smaller but no less systemic deposit-taking institutions, resulting in a more resilient banking sector and restoring trust and confidence in the system.
Bank of Ghana’s latest financial soundness indicators show that while assets held by the banking sector in August 2 017 when the reforms started stood at GH¢89.1 billion for a sector that had 36 banks, the total assets of the industry that now has 23 banks have increased significantly to GH¢138 b illion at the end of the second quarter of 2020 , with significant improvements in asset quality .
It is noteworthy that some of the now-defunct institutions had been diagnosed as far back as in 2015 to be significantly undercapitalized under the Bank of Ghana’s Asset Quality Review of the banking sector but not enough was done in time with the supervisory powers that were available to avert their inevitable demise.
This demonstrates the fact that restructuring options are only helpful when activated while there is still time, otherwise the slope to insolvency gets rather slippery and quickly too, leaving liquidation as the only option.
Now coming back to Act 1015 which is our focus today, we see it as an important addition to the framework for building a more buoyant economy, supported by a more efficient credit market.
The recent banking sector cleanup has provided impetus for a more robust credit environment, as banks are now better capitalized and more liquid, than before.
Access to credit , however, remains a challenge to many economic actors due in part to legacy non -performing loans on the books of banks and SDIs given the challenges they continue to face in their loan recovery efforts.
The Bank of Ghana has over the years put in place mechanisms such as the credit bureau regime to help banks and SDIs obtain information about borrowers’ credit behavio ur as part of the ir credit underwriting processes.
It also promoted the enactment of the 6 Borrowers and Lenders Act 2008 (Act 773), to promote transparency in the terms and conditions pertaining to lending, to establish a collateral registration regime for movable and immovable assets for all borrower types, and a mechanism for creditors to realise the security in their registered collateral through extra judicial means, except where the Lender was unable to enforce a right of possession in a peaceable manner.
Data from the Collateral Registry shows that while many lenders have been able to use the framework established under the Borrowers and Lenders Act to enforce their loan and collateral agreements, on the whole, enforcement remains a challenge as the majority of borrowers resort to the Courts to frustrate creditors.
In 2019 alone, banks had to write off bad loans worth GH¢1.6 billion which they had fully provisioned for in line with accounting and regulatory requirements.
This state of affairs impairs the balance sheets of banks and SDIs, limits their ability to support economic growth with more credit, and puts depositors’ funds at risk due to the capital shortfalls that ensue.
Act 1015 therefore holds promise for helping to deal with the NPL overhang, through effective debt workouts and other modes of restructuring to help creditors recover on their claims while giving debtors a chance to reorganize their economic and financial affairs.
This will no dou bt, enhance market discipline and provide incentives for market-based solutions to the perennial problem of limited access to credit.
Conclusion As I bring my remarks to a close, let me applaud GARIA again for championing the enactment of Act 1015 as a necessary accompanying legislation to the new Companies Act of 2019 (Act 992), and for your tireless efforts to raise the level of awareness of the need for a strong insolvency regime as well as a well-established industry of insolvency and restructuring professionals.
A lot has been done, but it appears a lot more is needed to sensitize all key stakeholder groups, particularly the private sector, given our cultural context that makes talking about and doing something about distress and insolvency a taboo.
Also, there is the need to continue relentlessly to build the professional body of corporate insolvency and restructuring practitioners.
Fortunately, Act 1015 provides for licensing of insolvency practitioners.
I urge GARIA to help to operationalize this licensing regime in the shortest possible time.
The recent banking sector cleanup exercise brought to the fore, the shortage of professionals in the area.
I note that Act 1015 7 makes provision for the establishment of GARIA under an Act of Parliament within two (2) years.
This is an opportunity to further strengthen its role in spearheading the development of a strong cadre of professional insolvency and restructuring professionals for all sizes and categories of businesses.
Lastly, I urge you to lead a review of the Insolvency Act of 2006 (Act 708), which focuses on personal insolvency, so that it is aligned with Act 1015 to provide options for restructuring for individuals and household debtors, particularly those that rely on consumer loan products of banks and SDIs.
This will ensure that there is a comprehensive and modern insolvency ecosystem made up of personal and corporate insolvency regimes, supported by bespoke special resolution regimes for financial institutions such as that established by Act 930.
In conclusion, t he Bank of Ghana remains committed to promoting economic growth and the efficient operation of the banking and credit system in Ghana, and supports the development of an efficient corporate insolvency regime and the work that GARIA continues t o champion.
I am hopeful that with the help of all stakeholders, Act 1015 will be implemented successfully to the benefit of our economy.
Once again, thank you for having me, and I trust that your deliberations here will be most fruitful.
2020 EDITION OF GIMPA’S BIENNIAL LAW CONFERENCE SERIES Theme: “The Banking and Financial Sector Crisis in Ghana: Towards Sustainable Reforms” KEYNOTE ADDRESS Dr.
ERNEST ADDISON GOVERNOR, BANK OF GHANA AUGUST 6, 2020 VIRTUAL CONFERENCE 1 The Rector of GIMPA, Members of the Ghana Institute of Management and Public Administration, Members of the Banking Fraternity, Distinguished Guests, Ladies and Gentlemen 1.
I wish to thank GIMPA for inviting me to deliver the keynote address for the 2020 edition of the Biennial GIMPA Law Conference, through this virtual means which has now become the new normal.
The chosen theme, that is, “The Banking and Financial Sector Crisis in Ghana: Towards Sustainable reforms” is most appropriate given the recent developments in the Ghanaian financial sector and the reforms introduced over the last three years.
The financial sector has become even more important given the outbreak of the COVID-19 pandemic and the unprecedented negative impact on our economy, on jobs and well-being, and the challenges of having to cope with the economic uncertainty that has engulfed the global economy.
Banks and SDIs are at the forefront of implementing the policy measures taken to counter the economic impact of the COVID.
Three years ago, t he Bank of Ghana embarked on a comprehensive reform process to clean up the banking and the SDIs sectors of our economy .
These reforms were predicated on the findings of Banking sector Asset Quality Reviews carried out in 2015 and updated in 2016 which revealed that several banks in Ghana were severely undercapitalized and insolvent.
T he Bank of Ghana set an agenda to resolve the insolvent institutions to prevent spillovers to other institutions, work with the undercapitalized institutions to recapitalize 2 to required thresholds and strengthen the regulatory and supervisory frameworks guiding the banking sector.
The reform exercise covered the resolution of four hundred and twenty (420) weak institutions made up of insolvent banks and SDIs.
These included nine (9) banks, fifteen (15) savings and loans companies, eight (8) finance houses, three-hundred and forty-seven (347) microfinance institutions, thirty-nine (39) microcredit institutions, one (1) leasing company , and one (1) remittance company.
The revocation of the se 420 licences was necessary to clean the financial sector and reduce contagion risks while creating an environment for stronger and well-run institutions to thrive and play their expected intermediary role of supporting the economy.
Mr Chairman, these resolved institutions had several deficiencies.
Some of them were set up overnight with little or no capital and by persons with questionable backgrounds with little or no experience in running banks.
A common thread was that they were all managed or controlled by shareholders with complete disregard for prudential norms and best practices in corporate governance.
It was clear that they were set up to get access to depositors’ funds to finance other businesses of shareholders or other relate d or connected companies.
In the process, oligarchies were formed involving various groups of companies under the control of common shareholding aided by their relationship with political authorities.
The Bank of Ghana , as the regulator and supervisor of the industry , was ineffective during the period .
Poor licensing practices led to licences being issued without the appropriate due diligence on shareholders and their sources of capital.
The Bank over activated its role as a lender of last resort and granted 3 excessive amounts of liquidity support to failing banks, without addressing the underlying problems that led to the illiquidity and insolvency of these institutions.
The underlying causes of the failure of multiple savings and loans, finance houses, and microfinance compan ies were no different .
Poor licensing standards, weak capital, weak governance and accountability structures, lending to related parties and cronies, poor risk management, and misreporting were very prevalent in the industry.
The Bank of Ghana raised the minimum capital requirement for the banks to GH¢400 million from GH¢120 million by 31st December 2018.
T his was a key policy aimed at strengthening bank s to become more resilien t, as well as strengthen their capacity to lend to better support economic growth.
At the end of the exercise in December 2018, the number of banks had reduced to twenty- three (23) either by shareholders raising capital , through mergers, by acquisition through other banks , or the Government -administered scheme called the Ghana Amalgamated Trust.
The recapitalisation repositioned the banking sector and made it better capitalized, liquid, stronger, and more resilient.
The Bank of Ghana itself had to be reorganised and restructured , and several key reforms were implemented to address the causes of the systemic failures that took place.
The approach was three-pronged, involving (i) Enhancements to the regulatory regime; (ii) Sharpening the Bank’s monitoring, supervision and enforcement tools; and (iii) enhancing capacity and addressing the ethical culture of Bank of Ghana’s supervisory departments and that of the industry.
The key directives issued as part of the reform process were:  The Corporate Governance Directive to address the fundamental weaknesses observed in the governance of banks .
These directives are to ensure that b oards of regulated financial institutions are composed of directors who can exercise strong and independent oversight and ensure that the interests of all relevant stakeholders are p rotected.
Also, that key management personnel have adequate qualifications, experience, and integrity to effectively manage these institutions; and that banks fully embed compliance with regulatory requirements and ethical standards as part of risk management frameworks, with compliance officers and Boards prioritising regulatory compliance;  A “Fit & Proper Person” Directive to help ensure that key shareholders, Board members, and key management personnel of banks possess the requisite knowledge, skill, an d character commensurate with what is required for their roles; and  A Cyber and Information Security Directive to make banks more resilient to cyber-attacks.
The Bank of Ghana also introduced measures to sharpen the main instruments used in enforcing its supervisory rules.
Specifically,  the Bank revamped its structures and procedures for licensing with more thorough due diligence and capital verification processes;  introduced an enhanced process for making new rules which involve d a more structured stakeho lder consultation process to transparency in the policy development process, and 5  instituted enhanced processes for examination (on -site and off -site) of regulated institutions, increased the frequency of on-site examinations, and strengthened accountabili ty for supervisory follow -up of examination findings.
Further, the Bank of Ghana has invested in a new state-of the art surveillance software.
This new electronic surveillance system will help capture supervisory data from regulated institutions more accurately and prevent the high incidence of misreporting witnessed with the failed institutions.
In addition, the software will enhance the analytical capacity of the supervision teams and help with more effective reporting of supervisory concerns for approp riate and timely interventions.
More importantly, the Bank has increased resources to its Departments that regulate and supervise the financial sector.
It has augmented the staff strength of the Banking Supervision, Other Financial Institutions Supervision, and Financial Stability Departments to enhance thei r capacity, drawing on existing skills within the Bank of Ghana as well as from the private sector.
In addition, the Bank has redesigned training programs for supervisory staff to enhance the quality of policy development, examinations, and reporting on re gulated institutions.
The bank is providing critical training and technical assistance to retool its supervisory staff to promote higher standards of professionalism and ethical behaviour with the object ive to ensure supervision teams are better equipped to identify early warning signs, enforce regulatory requirements, and ensure prompt corrective actions to moderate the risk of failure in the financial sector.
6 12.
Mr Chairman, the COVID -19 pandemic has presented a n unprecedented negative shock to the economy and a major test of the resilience and robustness of the banking sector.
The Bank of Ghana has risen to the challenge with policy measures to protect the financial system and support the real economy.
On March 20, 2020, the Bank of Ghana’s Monetary Policy Committee (MPC) announced a series of measures designed to mitigate the impact of the COVID-19 pandemic shock.
The measures included the following:  Lowering the policy rate by 150 basis points to 14.5 percent;  Lowering the cash reserve requirement ratio for banks from 10 to 8 percent to provide additional liquidity to the banks.