THE Bank of Ghana (BoG) has charged savings and loans companies operating in the country to strengthen corporate governance practices in their operations.
According to the industry regulator, strengthening corporate governance in the sector was very crucial in the wake of happenings in the sector, which had the tendency to erode public confidence in the system.
“Sound corporate governance practices are crucial to improving economic efficiency gains because they restrain mismanagement in financial institutions and instil discipline in the decision-making process at the board level,” the Governor of the BoG, Dr Ernest Addison, said in a speech read of his behalf by his Advisor, Mrs Grace Akrofi, at the eighth annual general meeting (AGM) of the Ghana Association of Savings and Loans Companies (GHASALC).
“I would like to encourage boards and senior management of all savings and loans companies to pursue sound corporate governance practices and comply<
She explained that corporate governance played an important role in promoting a sound financial system and contributing significantly to improving overall performance, not only profits but more importantly, the reputation of banks and deposit-taking institutions, as well as the credibility of the entire financial sector.
Sound governance practices, she also explained, contributed to the safety, soundness and stability of the overall financial system and the entire economy.
A case for sound practices
Mrs Akrofi explained that the dynamic nature of contemporary banking business stressed the need for sound corporate governance.
“For instance, the rapid changes in the banking industry, brought about by globalisation, deregulation and technological advances have increased inherent operational risks in the sector. Moreover, unlike other companies and enterprises, a significant proportion of funds used to conduct businesses by financial institutions belong to depositors.
“This makes financial institutions highly leveraged for which reason failures not only affect shareholders but depositors as well, culminating in adverse system-wide implications on the entire economy,” she said.
She added that the potential risks of non-compliance to sound corporate governance principles placed enormous pressure on regulators of financial institutions, explaining that without good governance structures, public trust in financial institutions could be eroded, which put shareholders’ investments and depositors’ funds at risk.
“No amount of capital that is injected or liquidity that is made available in any institution would suffice when the governance structures are weak. In fact, under such weak governance systems, liquidity evaporates and when unchecked progresses to solvency issues,” she added.
The BoG, she said, remained committed to ensuring that financial institutions improve governance practices, internal controls and risk management systems and, therefore, charged managers of the companies in the industry to adhere to this.
The AGM was on the theme “Strengthening the practice of corporate governance: the role of regulation and practice.”
The Executive Secretary of GHASALC, Mr Tweneboah Kodua Boakye, said the association had chosen to reposition its brand in the industry and charged members not to fail the public as it offers financial solutions to them.
“We should continue to remember that we occupy a huge space in the financial services spectrum and the expectations of the populace in us should be part of our guiding principles and we cannot fail the public through our actions and inaction,” he said.
He said it was important for members of the association to invest in compliance, urging members to continue to operate within the ambit of the law, especially the Banks and Specialised Deposit- Taking Institutions Act, 2018 ( Act 930).
He also urged members to explore technology opportunities that would help them stay competitive and survive the technological age.
“As we want to stay competitive, we should remind ourselves that technology is the future of delivering banking services. Let us continue to explore appropriate technology relevant to our business status and the future of the industry,” he said.