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Is Bank of Ghana regulating or regulated?

By: Charles Benoni Okine

THE financial services sector, particularly banking, is facing a lot of challenges. Many people who have either invested heavily in various financial instruments or deposited their lifetime savings with banks and other finance houses are now sitting on tenterhooks because they are not certain about the future.

With news of insolvency and gross breaches of corporate governance regulations becoming the order of the day, people are shivering and shying away from doing business with the banks in particular and other financial institutions in general.

The millions of cedis that have been sunk into educating people on financial inclusion is also going to waste because those yet to start saving or invest are becoming reluctant.

Genesis of it all
It all began with the collapse of microfinance institutions and savings and loans companies in various parts of the country some four years ago. Many traders, workers of private and public institutions, farmers, among many others, painfully lost their investments. Today, they grieve because they have nothing to fall on.

In the wake of the events, the Bank of Ghana (BoG) came under fire from various persons and institutions, including that of the presidency.

The bank was accused of poor supervision because it was accused of being unable to sanitise  the operations of these institutions. Many of the owners of the financial institutions had no knowledge at all about banking and investment, yet they were crafty enough to win the hearts of many people to invest in their companies only for them to collapse the business in the end.

Again, within the universal banking space, the same gross mismanagement and misappropriation of funds, corruption, greed and the lack of adherence to strict corporate governance rules have sent some seven banks (UT, Capital, Sovereign, Construction, The Royal Bank, uniBank and Beige) out of business because the regulator pronounced them insolvent.

This is expected to cost the taxpayer about Gh¢13 billion.
Many people with investments or deposits with these institutions are forced to access their monies in trickles because there is not enough left to take care of them.

In this instance again, the BoG was largely blamed for the problems because it was accused of not ensuring strict adherence to its own rules.

BoG’s firefighting antics
In its quest to save its face and restore confidence in the banking system, the regulator came up with some new guidelines. The BoG’s Fit and Proper Directive for Banks, Specialised Deposit-Taking Institutions and Financial Holding Companies states in part that;

 i. Pending as well as concluded criminal or administrative proceedings may have an impact on the reputation of the appointee and the regulated financial institution.

ii. While there is a presumption of innocence, the very fact that an individual is being prosecuted is relevant to propriety.

iii. Concluded proceedings will have an impact if the finding goes against the nominee. Even if the conclusion is in favour of the nominee, the Bank of Ghana may question the underlying circumstances of the proceedings to determine whether there is any impact on reputation.

A case in hand
The appointment of the Managing Director of a state-owned bank has become a topic for discussion because many are begining to wonder if the BoG is really serious about cleansing the system to ensure that persons who have been sued in one way or the other while they served on any financial institution in the country are eligible to hold such position.

This is not to pronounce the said MD guilty of any offence. However, the present suit brought against him by the Receivers of a bank he headed and also served on its board, raises serious questions about whether the regulator is serious about implementing its own rules and regulations to sanitise the crises-stricken industry, where panic withdrawals have become the order of the day.

Per its new regulations, the said MD is NOT qualified to head the state-owned bank. This assertion point is confirmed by many industry watchers, who are also worried about the recent turn of events and questioned the BoG for its public silence over the issue.

It may be working behind the scenes but such a sensitive issue should not be dealt with in the dark.

Mr Justice Awuku Sao, a retired Chief Executive Officer of the Institute of Directors (IoDs) and private consultant on corporate governance, said, “Section 58 of  Act 930  prohibits a person from being appointed or elected or from accepting appointment or election as a director, chief executive officer or key management personnel of a regulated financial institution if that person: had defaulted in the repayment of financial exposure; or has been a director, key management personnel associated with the management of an institution, which is being  or had been wound up by a competent court of jurisdiction on account of bankruptcy or an offence committed under an enactment.”

Dr Atuahene who specialises in corporate governance in banking said the conditions for appointing an executive member of a bank in the BoG’s own ‘Fit and Proper’ directives bares Dr Mensah from managing a bank.

He, therefore, wondered how the ADB MD passed the test, considering that he played a leading role – MD and board member – in the now defunct Capital Bank.

“He came from an institution which had collapsed and was under investigation. So at a time when the auditors were still doing their work, he should not have been given the green light to be MD of ADB,” he explained.

Way forward
Many in the country today – shoemakers, tailors, market women, farmers, petty traders and truck pushers –  who toiled day and night to make some small money and managed to save or invest, are either confused or suffering because they have lost millions of cedis collectively to all manner of characters parading as financial experts and owners of financial institutions.

The BoG was accused of sitting back in the past and watched the microfinance institutions and savings and loans companies to go down. Against this background, many are those who do not want to see a repeat of the inaction of the central bank until things get worse.

Now, the central bank seems to have shifted focus. It is pushing universal banks to recapitalise from GH¢120 million to Gh¢400 million by the end of the year while at the same time, reneging on its responsibility to check the wrongs in the system by whipping the players in line, using its own documented and widely published regulations.

It must be noted that no amount of recapitalisation will make the banking industry work again if the regulator fails woefully to sanitise the system by enforcing its own rules and regulations.

There is panic in the system and people are running on the banks and financial institutions. With these developments, the Panic of 1907 and the banking crises of 1930, 1931, and 1933 comes to mind because all had in common, massive system-wide runs on banks.

One of the most recent financial crises also went ballistic when there was a run on the investment banks and money market funds after Lehman Brothers failed. 

Many hold the view that government guarantees can work. Undoubtedly, the provision of government guarantees is quite common during a crisis, and has occurred, for example, in Sweden (1992), Japan (1996), Thailand (1997), Republic of Korea (1997), Malaysia (1998), and Indonesia (1998). But that should not be the case for Ghana after the government is said to be looking for GH¢13 billion to fix the problems caused by the ‘deadly seven’.

This is because such a move can rather heighten the rate of irresponsibility, mismanagement, misappropriation and corruption within the already ailing banking system.
The author of the article titled “Designed to Fail: Why Regulatory Agencies Don’t Work” quoted Albert Einstein as saying that the definition of insanity is doing the same thing over and over again and expecting different results.

According to him, we have been “reforming” regulatory agencies over and over again, and over and over again they have failed. Yet, in spite of the various catastrophic failures of regulatory agencies across the world, politicians and pundits are talking about the same old “Regulatory Reform” again. 

“Fill the regulatory agencies with honest people who won’t cave in to special interests.”  “Give them more money, more authority and more people.”  But my experience has shown that by concentrating all legislative, executive and judiciary authority in one regulatory agency just makes it easier for it to be corrupted by the industries it regulates”, he added.

What is happening to the financial sector in the country seems like a joke but it is serious and has the potency to totally collapse the economy.

While questioning the role of the central bank in all these, the appointing authorities cannot escape blame for what is happening because they should also be aware of the rules and do what is just and in accordance with the law.

Governments have the power to also conduct proper due diligence on persons they intended to appoint to sensitive insitutions and must therefore, exhaust that channels for obvious reaons.

Banking is a serious business and must be reserved for persons who have the interest of the nation at heart and not those whose actions and inactions will force the economy to remain on its knees. The central bank must be seen to be doing its work as a regulator and not one that is regulated.