BoG to strengthen supervision to curb bank failures

The Bank of Ghana (BoG) is strengthening its banking sector supervision by incorporating Business Model Analysis (BMA) into its regulatory framework.

The move aims to identify and address potential vulnerabilities before they lead to bank failures.

Speaking at the 28th National Banking and Ethics Conference last Thursday in Accra, the Governor of the BoG, Dr Ernest Addison, announced that the central bank had recently issued an exposure draft of its methodology for assessing the viability of banks business model to the industry, which will soon finalise for adoption. 

Financial sector clean-up

This comes after analysts had blamed the BoG for weak supervisory oversight that led to a serious banking sector crisis in 2017. About seven banks were collapsed in an exercise that cost the taxpayer over GH¢22 billion.

With remnants of that exercise still lingering, the latest development is expected to restore hope and keep players in the industry upright. He said: “Business model analysis has the potential to enhance bank supervision and make it more effective, proactive and forward-looking, and would be our next examination thematic review next year.

“Weaknesses leading to the collapse of banks are not overnight. Unviable and unsustainable business models and strategies are often the root causes of banks' vulnerabilities and failures.” 

“While sudden external shocks such as Covid-19 or the global financial crisis could be greatly impactful and cause the immediate demise of some banks, the root causes are generally more structural,” he said.

He said if not identified on time and allowed to fester, these vulnerabilities would make a bank's activities increasingly unsustainable, to the point where it becomes non-viable. 

The conference, on the theme: "Resilience in the Financial System: Navigating Horizon Risks," brought together financial sector professionals to address industry challenges and chart a path forward for a more resilient banking sector.​​​​​​​​​​​​​​​​

Strengthening capacity

In his opening remarks, the President of the Chartered Institute of Bankers (CIB) Ghana, Benjamin Amenumey, highlighted the need for the sector to strengthen itself against a dynamic economic environment.

“The challenges our sector has faced, and continues to encounter, underscore the present need for the banking sector to strengthen its capacity to withstand shocks and adapt,” he said. 

He explained that the recent years, particularly with the implementation of the Domestic Debt Exchange Programme (DDEP), have tested the resilience of financial institutions, forcing banks to manage liquidity constraints while maintaining public confidence. 

Mr Amenumey said one of the critical risks confronting the sector was the rising level of non-performing loans (NPLs), adding that “persistent economic pressures have strained businesses and households, impacting their ability to service loans.

NPLs in key sectors such as construction, energy and agriculture continue to grow, threatening bank balance sheets and eroding profitability.”

According to him, addressing these risks requires more innovative approaches, particularly in credit assessment and loan recovery frameworks.

He further urged banks to adopt stronger risk mitigation strategies to stay ahead of the challenges.

Fraud report

According to the Fraud Report by the BoG, value lost due to fraud in the banking sector shot up to GH¢88 million in 2023 compared to GH¢82 million recorded in 2022, indicating an increase of about seven per cent. 

Data collated from the three sub-sectors — banks, Special Deposit-Taking Institutions (SDIs) and Payment system platforms (PSPs) — indicated that overall, fraud cases increased to 15,865 in 2023 from 15,164 in 2022, reflecting a five per cent rise. 

Despite the stringent measures adopted by the BoG to help check the upsurge of fraud within the banking sector, the number of such cases continues to rise. 

Ethical practices

In his presentation on the topic: ‘Navigating the Horizon Risks with Trusted Professionals, the CEO of CIB Ghana, Robert Dzato, emphasised the critical need for trust and ethics in the banking sector, noting that public confidence in banks had been shaken in recent years. 

Citing recent fraud headlines and reports from BoG, as well as rising concerns such as cyber threats and the financial sector's role in addressing illegal mining, commonly known as "galamsey," he said trust in the banking industry must be rebuilt through ethics, character, competence and effective regulation.

“Under the Chartered Institute of Bankers Act 2019, the CIB's mandate is to promote banking education and regulate the banking profession in Ghana. 

This translates into developing professionals who are not only technically skilled but also committed to ethical practices and sustainability. 

Our sector needs smore trusted professionals to meet the challenges ahead,” he said.