difficulties associated with the financial system and how these challenges have been addressed by the Banks and Specialised Deposit Taking Institutions
Answers
Explanation:
The Banks and Specialised Deposit-Taking Institutions Act 2016, Act 930, is the primary statute governing banking ... Within the past three years, the Bank of Ghana (BoG) undertook banking sector reforms to strengthen and to inspire confidence in the financial system. This led to a number of banks and specialised deposit-taking institutions (SDIs) having their licences revoked. The BoG announced that the banking- and SDI-sector reforms have been concluded. However, the government of Ghana will continue to pursue a policy that provides appropriate mechanisms to minimise financial system instability and deal with emerging risks using effective supervision and regulatory measures. Through the policy, the government seeks to make the financial sector of the country the preferred source of finance for domestic companies and further develop, strengthen and modernise the financial sector to support the government’s economic vision and transformational agenda. The BoG supports the general economic policy of the government by promoting economic growth, effective and efficient operation of banking and credit systems in the country. The BoG, to create a stable and efficient financial system, still has the following on its agenda:
increased disclosure requirements for financial institutions in line with Pillar III of the Basel Accord;
strong capital adequacy of financial institutions so that they will be Basel II and III compliant;
effective supervision and regulatory measures;
enforced strict compliance with all directives, including the Capital Requirement Directive (Pillar I) of the Basel II Accord and International Financial Reporting Standard 9;
finalised implementation of Pillar II of the Basel II Accord;
fully implemented consolidated supervision alongside revisions to the BoG’s Risk-Based Supervision Framework;
enhanced cooperation with other financial sector regulators and relevant foreign regulators; and
certainty that banks develop, adopt and implement plans to scale up financial inclusion and sustainable banking efforts to support the achievement of the Sustainable Development Goals, deploying emerging technologies on the back of the new interoperability framework.
Primary and secondary legislation
Summarise the primary statutes and regulations that govern the banking industry.
Act 930 of the Banks and Specialised Deposit-Taking Institutions Act 2016 is the primary statute governing banking industry in Ghana. This came into force on 14 September 2016 to repeal the Act 673 of the Banking Act 2004. The new banking law has consolidated the laws relating to deposit taking and regulates institutions that carry on deposit-taking business. It does not apply to credit unions and leasing companies that are licensed and supervised under Act 774 of the Non-Bank Financial Institutions Act 2008.
The new Act is wider in scope compared with the repealed Act 673 of the Banking Act 2004 and has given the BoG increased supervisory powers.
A concept of financial holding company has been introduced under the new Act. A person will not be permitted to serve as a financial holding company of a bank save where it has registered with the BoG. The BoG is vested with the powers to exempt a foreign bank or other foreign company from the registration requirements of a financial holding company. The BoG may grant that exemption to a foreign bank or other foreign company provided it is regulated and supervised in another jurisdiction. There should be some evidence that the foreign bank or company is supervised on a consolidated basis in its home country or another host country where it has substantial operations.
It imposes personal liability on principal officers or directors of a financial institution for non-compliance with a regulatory requirement.
It gives the BoG the power to formulate corporate governance directives and rules for financial institutions in Ghana, such as:
Act 931 of the Ghana Deposit Protection Act 2016, in force on 14 September 2017. It provides for the creation of a deposition protection scheme, a deposit protection fund, Ghana Deposit Protection Corporation (GDPC) and other related issues, and seeks to give protection to small depositors in the event of bank failure;
Act 612 of the Bank of Ghana Act 2002 establishes the BoG as the Central Bank of Ghana with a primary function to regulate, supervise and direct the banking system and credit system to ensure the smooth operation of a safe and sound banking system.
Explanation:
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Broadly speaking, a country’s financial system includes all institutions involved in moving savings from households and firms (whose income exceeds their expenditures) to other households and firms who like to spend more than their income and liquid assets. There are basically five parts of the financial system in Ghana
Explanation:
Challenges faced by the Financial System in Ghana
- "Macroeconomic" factors"; "poor corporate governance & "risk management practices"; "related party transactions" which were not "above board"'"regulatory non-compliance"' & "poor supervision"; ("questionable licensing processes" & "weak enforcement"); failure to "oversee bank accounting" & "corporate reporting systems" together with the "external auditing system" because of to lack of experience/r greed"; "lack of independence & integrity" amongst Auditors; all these factors resulted in considerable build-up of "vulnerabilities" in the financial system.
- In addition, because of bad corporate governance, effective risk management procedures were not implemented in credit delivery to reduce the credit risk, as well as proper surveillance and measurement modalities were not implemented in credit delivery.
- Another big cause of the collapse of certain banks is "non-performing loans". It has been noted that many of the banks which collapsed have huge loans on their accounts. This has financial consequences for banks, which could lead to reduced capital, which leads to undercapitalisation.
- The report made a number of substantial & controversial allegations concerning Bank conduct including substantial loan portfolios, "liquidity shortfalls", "rapid undercapitalisation" & "excessive loans" to "shareholders". The report also made several important and contentious claims.
The "Banks & Specialized Deposit Taking Institution Act (2016)" is the legal basis under which the mechanism of Ghana resolution for bank failures has been established
- Several banks collapsed in Ghana over the last few months Most market observers believe that during this time the "herculean efforts" of the central bank of the nation had prevented "bank runs" & minimized contagion to the wider economy..
- The Central Bank 's pace and efficacy in avoiding depositors loss and disruption in local capital markets was a "welcome display" of the "regulatory efforts" made after the financial crisis of 2008 by established African economies such as Ghana.
- The "Banks & Specialized Deposit Taking Institution Act (2016)" is the legal basis under which the mechanism of Ghana resolution for bank failures has been established
- The Central Bank 's powers and discretion under the regulations allowed it to take the required measures to bring the banks that are failing into "state ownership". In the credit flow to small businesses as well as the payment to rural and industrial areas , local banks play a vital role; chaotic dissolution of the bank that have failed may lead to adverse effects in the real economy.
- Redressing initiatives have been enforced for months to promote the clean-up of the financial industry. Any of the shortcomings found in the regulatory system have been resolved by a number of legislative directives. The Central Bank has enforces a minimum of "GHS 400 million" (90$ million) as the capital requirement for local banks, this is more than "double" the previous requirement.
- This has established the "Ethics & Internal Investigations Office" & the new Corporate Management Directive to reform the management culture and define requirements for a individual to act as a senior manager/director in a financial entity governed by a regulatory agency.
- Review & potentially improve the "scope & transparency" of the "Ghana Deposit Protection Corporation" that is incharge with "protecting deposits" in the event of a bank failure. Finally, in addressing the capital shortcomings, the Central Bank Governor confirmed that it would enforce a "Directive" on capital requirements, which would integrate into "Ghanaian law" the provisions of the relevant "Basel II / III" "Agreement" by 1st January 2019.
Some novel ways to by which some of these challenges can be resolved
- Strict regulatory mechanisms in place by banks including regulations related to bank audits mechanisms
- Stringent rules when disbursing loans & appropriate procedures in place to be implemented to avoid credit risk
- Enforce good corporate governance and measures to prevent corruption by top management and recruitment and hiring of top management
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