Banking & Finance

Stability of Ghana’s banking sector ‘undermined’ but outlook positive – BoG

Governor of the Central Bank, Dr. Ernest Yedu Addison

The central bank has revealed a troubled financial sector in a statement Tuesday, citing “poor banking practices” as one of the many causes.

The Bank of Ghana (BoG) reveals the takeover of the management Unibank announced Tuesday is among target actions to correct the situation.

“Poor banking practices, coupled with weak supervision and regulation by the Bank of Ghana has significantly undermined the stability of the banking and other non-bank financial institutions and we all know some of the consequences by now—revocation of licenses of two banks while other banks were placed under comprehensive capital restoration plans,” the central bank acknowledged.

The central bank Governor announced the take over of the management of the privately-owned Unibank by KPMG at a press conference in Accra, citing 10 reasons that point to severe challenges.


Ernest Addison said the bank, adjudged 6th best performing company in Ghana at the Ghana Club 100 awards in 2017, provided inaccurate d the central bank’s effort to resolve the problems last year.

Unibank is said to have “persistently suffered liquidity shortfalls and consistently breached its cash reserve requirement.”

Last year, Capital Bank and UT Bank suffered similar fates when the BoG announced state-owned Ghana Commercial Bank as the new owner of the two private banks.

The BoG explained at the time that the takeover of the two banks, which was preceded by the revocation of their licences, was due to severe impairment of their capital.

The central bank’s statement on Tuesday is titled “State of the financial sector in Ghana”, and trances to problems in the sector to a review conducted two years ago.

“A comprehensive Asset Quality Review (AQR) conducted by the Bank of Ghana in 2016 showed severe deterioration in asset quality in the banking sector. The AQR results also showed substantial provisioning shortfalls in a subset of banks (with a combined capital

needs of around 1.6% of GDP).

“These toxic balance sheets of banks contributed to a decline in credit to the private sector and higher lending rates and spreads, undermining the transmission of monetary policy rate to the economy through market rates. In addition, there was unusual forbearance by the Bank of Ghana, which resulted in the extension of significant amounts of Emergency Liquidity Assistance (ELA) to these ailing banks, some of which were uncollateralized with accompanying risks to both the Bank of Ghana, in terms resources to conduct monetary policy operations and reputation risks, and also to the banks themselves.

“This official liquidity injection, together with banks’ reluctance to extend new credit, further increased excess liquidity in the economy, which became extremely expensive for the Bank of Ghana to mop in order to support the disinflation process,” the BoG recounts.

The central bank, however, gave the assurance that a cleanup of the sector has started in earnest.

“While several important steps have been taken thus far, a lot remains to be done to restore safety, soundness and stability in the financial sector,” the statement assured.

The challenges in the sector notwithstanding, the central bank said the outlook for the financial sector is positive.

“In the months ahead, we will engage with stakeholders as we design specific measures to strengthen systems and processes that would improve the industry.

The BoG has set out the following measures as a means of restoring confidence in the financial system:

– Introduction of the Basel Regulatory Capital Requirement Directive;

– Review of guidelines, directives and regulations to the industry in line with the new Banks and Specialized Deposit-taking Institutions Act, 2016 (Act 930);

– Roll-out of the Basel II/III supervisory framework, and ensure implementation of IFRS 9 by banks;

– Full implementation of the new minimum capital requirements for banks by end-December 2018 deadline. To this end, the BOG will issue guidelines to the industry on compliance with the capital increase directive of 2017 and strictly monitor compliance;

– Address specific risks from high NPLs, poor corporate governance and poor risk management systems. To this end, we will issue directives on corporate governance, risk management (including cyber and information security-related risks);

– Strictly enforce Fit and Proper Guidelines for Shareholders, Directors and Key Management Personnel of Banks and SDIs as well as other supervised Non-Bank Financial Institutions to ensure bad behaviour is not recycled within the financial sector;

– Strengthen the capacity and resources of the Banking and Supervision Department, undertake a comprehensive review and improvement of all supervisory processes, and ensure strong enforcement of prudential and conduct regulatory requirements;

– Strengthen overall financial stability risk assessments and establish adequate measures to promote stability of the financial system;

– Roll out implementation of the deposit insurance scheme established under the Ghana Deposit Protection Act, 2016 (Act 931),

– Introduce Banking Sector Cyber and Information Security Guidelines to protect consumers and create a safer environment for online and e-payments products in line with the government’s interoperability objective, and finally

– Improve collaboration with other regulatory bodies to prevent regulatory arbitrage;


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Janet Amemasor

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