A banking consultant, Nana Otuo Acheampong, has cautioned that the introduction of the deposit protection scheme should not make the Bank of Ghana (BoG) renege on its supervisory role of protecting customer deposits.
He said although the Ghana Deposit Protection Act, 2016, Act 931 was introduced to help protect small depositors from losses as a result of the occurrence of an insured event, it did not absorb the BOG from playing its supervisory role. Instead, it should intensify supervision to ensure that financial institutions operating in the country did so within stipulated guidelines to prevent instances that would lead to the collapse of those institutions.
At the Graphic Business/Stanbic Bank Breakfast Meeting in Accra on February 6, Nana Otuo Acheampong said, “Their prudential supervision is still there. The passing of the act is to ensure that depositors are protected if something goes wrong.”
“But that shouldn’t take away the fact that the central bank’s supervision should be intensified. Lately, what we are hearing in the news is not good at all. The number of institutions that are going down outside the banking sector is becoming one too many,” he stated at the forum which was on the theme; “Deposit insurance: A catalyst for a stronger banking industry.”
The event, the flagship thought-leadership programme of Graphic Business, had Stanbic Bank Ghana as the lead sponsor.
Nana Otuo Acheampong speaking at the meeting
The forum brought together industry players to explore the topic and for the BoG to give an update on the new scheme which is meant to support the development of a safe, sound and efficient stable market-based financial system in Ghana.
The financial services sector is one inherent with a lot of risks and, therefore, requires prudent management to ensure that customers are not left worse off after a while.
Nana Otuo Acheampong explained that: “The only uncertainty is certainty”, which means that there is always an element of risk in whatever one does, and as a result the new Act seeks to provide some form of protection from this risk.
“If depositors are banking with deposit-taking institutions, then there is a risk element in doing that so the Act provides some amount of assurance that; if a bank or specialised deposit-taking institution goes down, then you have some protection,” he said.
Deepening financial inclusion
The banking consultant also explained that the introduction of the deposit insurance scheme had the tendency to encourage financial inclusion as it would offer limited benefits to people who originally wouldn’t want to be included in the financial landscape.
“If there is some protection for their deposits, then they will come into the financial services sector. The law is for the benefit of the depositors, especially those who do not want to be included in the system. Once they get to know about this they will be included and this encourages financial inclusion,” he stated.
Deposit insurance in Ghana
Some financial institutions have experienced some mini crises that have led to their closure or revocation of their licences, putting customer deposits at risk and eroding confidence in the sector.
The introduction of the scheme is, therefore, to offer protection to banks and special deposit-taking institutions and customers because of the vital role of confidence in the operation of the banking system and the economy.
The Governor of the BoG, Dr Ernest Addison, said the deposit protection scheme would reduce the risk of financial crisis by minimising bank runs and preventing the breakdown of payment systems.
He noted that the scheme also imposed on banks and special deposit taking institutions the responsibility to contribute towards the cost of resolving failed institutions, thus reducing the burden on fiscal and monetary authorities.