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

and this led to most of the foreign lenders cutting off their credit lines to the bank and recalling their credits thereby creating serious liquidity squeeze to the bank. also, very high executive compensation schemes were being operated by the affected banks which were not commensurate with their operations. the risk and earnings profile of the banks could not support the compensation schemes. non - executive directors of the banks compromised their independence and fiduciary duties to serve as checks on executive directors. this was because rewards such as 9 | page business class air tickets were being granted to them annually. interference by non - executive directors in the day - today administration of the banks weakened the management oversight function of executive directors. some non - executive directors were also acting as consultants to the same banks with no clear mandate, which gave rise to conflict of interest situations. non - adherence to credit management principles and procedures as the banks were heavily exposed to insiders and related parties. there was also no evidence of interest payments on these investments. the investments were therefore impaired, but some members of the board at the time accepted the responsibility to pay off the said amount through a board resolution. diversion of funds to holding companies and their related parties was wide - spread. in the case of one bank, placements could not be traced to the bank ’ s records though some customers showed proof of their investments with the bank. 10 | p a g e irregular board meeting also accounted for the weaknesses in the board oversight. in all of these cases, one thing was clear, and that is, the banks could not delineate themselves from their past practices as finance houses. they followed the same practice of borrowing from high net worth persons at a very high costs without any plans to bring themselves in line with the industry norm. 19. certainly, it is for these numerous reasons that the central bank is seeking, among others, to enhance corporate governance practices as well as risk assessment frameworks across all banking institutions. this will contribute significantly to improve overall performance as well as the reputation of banks and credibility of the entire financial sector. 20. some may ask, what were the banks supervisors doing during all this time with such gross violations going on in the banking sector. 21. upholding the highest ethical standards and professionalism in the performance of our supervision function cannot escape my watch going forward, and i 11 | p a g e demand same from you all. we shall employ an appropriate mix of both on - site supervision and off - site surveillance