Common prudential norms for six-member monetary zone

Central banks in the West African Monetary Zone (WAMZ) have made significant progress towards adopting the same policies and supervisory approaches in their oversight responsibilities on banks.

They have all adopted the risk-based supervision approach where more resources are focused on the systemically important banks, those whose failure could affect the entire banking system.

In risk-based supervision, there is focus on the process and policies that a bank adopts to achieve growth, rather than an emphasis on earnings.

“The approach to supervision has shifted from compliance-based to risk-based among the WAMZ zone. So the zone is fully risk-based,” economists at the West African Monetary Institute, a body housed in Accra which is coordinating the efforts to set up a single central bank for the zone, told the GRAPHIC BUSINESS on the sidelines of the 38th Meeting of the Technical Committee of the West African Monetary Zone (WAMZ).

The January 8-15 meetings were part of the end-of-year statutory meetings of various ECOWAS integration bodies and committees.

They said banks in the region had also fully embraced the International Financial Reporting Standards (IFRS) which made comparing financial statements of banks in the region easier and more certain.

These harmonised positions came about as a result of the establishment of the College of Supervisors for the WAMZ region. It was set up around 2008 after the financial crisis that hit the world and the expansion of especially Nigerian banks to other parts of West Africa.

Their ultimate goal is to achieve harmonised financial systems regulatory and supervisory laws. This will assist in the establishment of a single Central Bank for West Africa as a precondition for the introduction of a single currency.

Ghana’s former Head of Banking Supervision, Mr Franklyn Belnye, who has been a participant in the college’s activities, told the GRAPHIC BUSINESS that the establishment of the College of Supervisors had contributed immensely to improving the banking industry supervision and regulation in the WAMZ region.

The WAMZ region, comprising Ghana, Guinea, Nigeria, Liberia, The Gambia and Sierra Leone, is undertaking technical preparations for the establishment of a common West African Central Bank and the launching of a single currency for the West African Monetary Zone (WAMZ), as a fast-track approach to catch up with the well-developed francophone West African monetary zone. 

College of Supervisors for some banks

Mr Belnye said the college met quarterly to share information and ideas on the banking landscape and that their collaborative efforts had led to the setting up of bank specific college of supervisors for UBA and ECOBANK, huge banks which operated across many countries within the region.

In Ghana, for instance, banking supervision officials from Ghana and Nigeria conduct joint reviews on Nigerian banks to ensure that their operations are uniform across the two countries and risk issues are not transferred from one jurisdiction to the other.

“The college, therefore, meets regularly to discuss issues and also resolve those that may be inimical to banking operations. We exchange ideas and experiences on what should be done,” Mr Belnye explained.

Prudential norms

When it comes to the practices that all banks are expected to follow as issued by the central bank, Mr Belnye, who is now Head of Financial Stability at the Bank of Ghana, said banks within WAMZ were almost through with a harmonised basis for determining non-performing loans (NPLs), a departure from previous times when each country applied a different basis.

“This is to make for easy comparison. The basis for determining NPLs may also make the levels higher or lower. We now have uniform prudential measurement indicators. This project started last year and it is being supervised by WAMI,” he indicated.

He was happy that even before the central banks had a common position, countries were engaging in peer learning and were implementing best practice before the policies were even enforced across the zone. — GB