Poor corporate governance contributing to high loan defaults

The Bank of Ghana(BOG) has identified the non-adherence to good corporate governance as one of the major causes of a high level of loan impairment within the banking sector.

“We all agree that bad loans erode a bank’s capital; however, let me add that poor corporate governance practices are just as bad if not worse”, the Head of Banking Supervision at the Bank of Ghana, Mr Raymond Amanfu said.

In a speech read on his behalf at the inauguration of its head office and Airport branch building of FBN Bank in Accra on Friday, he said “the high impaired assets of the banking industry is a function of weak infrastructures and weak in identifying probable defaulters”.

To that end, he said the Bank of Ghana in its quest to strengthen the risk management practices of banks had sponsored institutions such as the Credit Reference Systems and Collateral Registry to help in profiling borrowers.

“The review of the Borrowers and Lenders Act seeks to address recognition of perfected collateral foreclosure issues, while Credit reporting Act is being reviewed to include among other things, providing data on all borrowers (current dispensation require only negative information”, he said.

Mr Amfu said other structural reforms being embarked on by the government such as the digital addressing system for building a centralised national database and the national Identification System project will invariably improve on the NPL situation within the banking sector.

Banking and economy

He said the banking sector was not spared as the fundamentals of the economy were severely tested from the system-wide risk emanating from the macro-economy.

He said there had been significant developments in recent times and as the economy is “rebounding the banking sector should be well positioned to support the growth potential of our economy”.

“It is incumbent on us as regulators to ensure that we have a resilient banking system, thereby protecting the safety and soundness of the financial system,” Mr Amanfu said.

Bank recapitalsation

On the issue regarding the recapitalisation of the banks, he said “the importance of a well-capitalised banking sector cannot be overemphasised and regulators intermittently review the levels of minimum capital requirements of banks to protect depositors’ funds”.

Mr Amanfu said under the banks Specialised Deposit-Taking Institutions Act (Act 930) the discretionary powers of the BOG to grant single obligor limit has been extinguished.

“It is in the light of this and other factors that the Bank of Ghana has increased the minimum capital of banks to GhC400 million; Banks have up to December 2018 to comply with the new capital requirement and would be required to submit a capitalisation plan to the Bank of Ghana”, he added.

Here for long haul

The Managing Director and Chief Executive Officer of First Bank of Nigeria Limited and Subsidiaries, Dr Adesola Adeduntan, said the bank was in the country for the long haul.

According to him, the new head office building of the company was a testimony to the resolve of the bank to operate in the country permanently.

The Managing Director of First Bank in Ghana, Mr Gbenga Odeyemi, said the bank was poised to become a leading bank in the industry.

He pledged the commitment of the bank to ensure continuous offering of quality service to its clients.