kwesi bekoe amissah - arthur : risk management in well - capitalized banks speech by dr kwesi bekoe amissah - arthur, governor of the bank of ghana, at the launch of the pricewaterhousecoopers ghana banking survey, accra, 10 june 2010. * * * country director and staff of pricewaterhouse coopers ( pwc ), chief executives of banks, invited guests, ladies and gentlemen it is a pleasure to be part of the launch of the 2009 banking survey. the publication of the survey is valuable and contributes to the process of providing a better appreciation of developments in our banking institutions. pwc deserves commendation for producing this document consistently over the last ten years. i am told that investors have found it a useful source of information for making investment decisions ; and in deciding which banks they should do business with. the methodology analyzes the published financial statements of banks ( i. e. information already in the public domain ) and draw conclusions based on parameters such as asset size, deposit liabilities, profitability and capital adequacy. pricewaterhouse coopers gave me absolute liberty to choose my topic. since we are launching a report on banking sector developments and performance, i have chosen to focus on the subject of risk management. from as far away as the united states of america we know the recent financial sector crisis originated from the sub - prime mortgage sector of the banking system. the impact has been felt around the globe and has left, in its wake, major financial institutions on their knees. the developments have affected hitherto remotely related economies and have left lessons for policy makers and bankers. not very far from here, nigeria averted a major crisis in its banking sector in 2009, requiring the central bank injecting liquidity into a number of banks and installing turnaround management teams to steer these banks out of trouble. what lessons are there to learn from financial crisis especially as we re - capitalize our banks to make them stronger and therefore better endowed for effective financial intermediation? are well - capitalized banks necessarily a good thing, especially where this is not complemented by strong risk management? i propose to share with you some perspectives on these issues. rationale for well - capitalized banks the banking system has three major functions : taking deposits, making loans and investing in securities. through its financial intermediation function, banks facilitate capital formation and promote economic growth. however, the ability of banks to eng

##ender economic growth and facilitate development depends on the health, soundness and stability of the system. the need for strong, well - capitalized and viable banks is underscored by the fact that the banking industry is one of the few sectors in which shareholders ’ funds are only a small proportion of the liabilities that banks hold. this, therefore, provides the necessity for the strong regulation of the banking sector. as is well known in the country, in 2007 the bank of ghana determined new capital requirements for banks operating in the country. globally, size has become an ingredient for success. all things being equal, an enhanced capital - base should improve the competitive edge of a bank as it enables the bank to acquire appropriate, modern technology, engage suitably qualified personnel and capacity to absorb shocks. it also positions the bank to offer better value - added services more profitably. there are many other benefits attached to the appropriate capitalization of the banking sector, and the ghanaian banks stand to gain a lot from them. some of these benefits are : strong capital is a basic indication of solvency, and provides a good cushion against loss ; an insurance against insolvency ; recapitalization provides an opportunity for eliminating weak banks from the system in an orderly manner ; well capitalized banks have better prospects for profitability and operational efficiency ; recapitalization provides an avenue for broadening the shareholder base of banks, especially through public listing, thereby improving prospects for good corporate governance ; well capitalized banks are better placed to finance the long term development needs of the ghanaian economy and businesses ; and banks are able to invest more in training and development of manpower. while there are potential upside benefits to be derived from well capitalized banks, there are equally downside risks, especially where risk management is not given the requisite attention. the activities of banks are inherently risky and capital is not a complete panacea for risk taking. boards and senior management of banks must ensure that their risk appetite is held in check and that the quality of risk management practices is not compromised. in this regard, risk management should not be a discussion confined to only senior level management. risk management should be an enterprise - wide process, involving all levels. top management is responsible for putting in place a well - defined risk governance framework and formulating the appropriate risk strategies. at the operational level, the roles of the business units are to ensure that key risks are appropriately identified, assessed and mitigated. risk management is a