Heed stress test call

BY: Daily Graphic
Dr Ernest Kwamina Yedu Addison, Governor of Bank of Ghana
Dr Ernest Kwamina Yedu Addison, Governor of Bank of Ghana

The financial services sector in the country has gone through some turbulent times recently.

In 2013, some clients of a microfinance company thronged the Ho Municipal Police Station to report fraud against the company.

They claimed they had gone to the offices of the company to transact business, after saving with it for a period, only to find the offices locked and vacated.

And Ghanaians have not forgotten the saga of DKM, God is Love Fun Club and others which still owe people who saved with them.

As if these instances of financial impropriety were not enough to shake the foundations of the financial services sector, the country woke up in August last year to the news of the liquidation of the UT and the Capital banks.

Apparently, the two banks had significant capital deficiencies arising from poor corporate governance practices, with shareholders said to be exerting undue influence on their managements, leading to poor lending practices, as well as weak risk management systems and poor oversight responsibility by the boards of directors.

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Again, a few days ago, five banks — UniBank, The Royal Bank, the Beige Bank, the Sovereign Bank and the Construction Bank — had their operating licences revoked after they had experienced liquidity challenges. Deposits and selected assets and liabilities of these banks have since been acquired and assumed by a new bank — Consolidated Bank Ghana Limited (CBGL).

The banking sector, no doubt, has not remained the same, with many workers of the defunct UT and Capital banks declared redundant.
Similarly, staff of the five folded banks who have been absorbed into the newly created CBGL have been informed that their performance will be assessed after 60 days, following which their employment status will be decided.

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These are certainly not pleasant times for the workers of these banks, with the attendant social problems.

But the Daily Graphic has learnt that the circumstances leading to the folding up of the five banks did not take place overnight. In fact, experts had predicted a couple of years prior to the events that unless the right things were done, some banks would face difficulties that could lead to their collapse.

Although the Governor of the Bank of Ghana (BoG) has assured the country that the banking sector is robust and can withstand any financial crisis, we cannot say that the happenings in the sector have not in any way affected people’s confidence in the sector.

It is for this that we are gladdened by the fact that already the Economic and Organised Crime Office (EOCO) is investigating those whose actions or inaction led to this situation.

We urge the governor to also look within and apply sanctions against those who neglected their supervisory duties and/or connived to create the environment that led to the collapse of the banks.

The outcome of the investigations by EOCO and any sanctions that will be applied should be made public to strengthen the confidence that people have in the banking sector.

It is also important for the BoG to heed the advice by an investment consultant, Dr Samuel Ankrah, for the central bank to conduct stress tests on banks in the country to determine their credit, market and liquidity risks and generally their financial health to withstand the impact of any adverse economic developments.

We share in his view that such tests should be conducted unannounced to put the banks on their toes for them to conform to regulations.