BoG To Strengthen Regulatory And Supervisory Regime

The first Deputy Governor of the Bank of Ghana, Mr. Milison Narh has disclosed that, the Central Bank has developed guidelines and regulations which are being fine-tuned for the consideration of the Sector Minister for Finance and Parliamentary approval where necessary in order to further strengthen the regulatory and supervisory regime.

The Deputy Governor mentioned Corporate Governance Regulations, Licensing Regulations, Outsourcing Guidelines, and Risk Management Guidelines, External Auditors Regulations, Mergers and Acquisition Guidelines as some of the guidelines formulated.

Mr. Miison Narh, made these observations when he delivered his keynote address on the occasion of the 13th Annual Working Luncheon of the Ghana Association of Bankers in Accra recently.

Of these, he noted, ''the Outsourcing Guidelines and the Corporate Governance Regulations have already been exposed to industry and we have received contributions and some interesting comments from the banks as it is evident without a strong Corporate Governance regime, shareholder's investments will be put at risks and the industry as a whole would be less attractive to investors.

To further strengthen its supervisory function, the Bank has also initiated action towards the revision and consolidation of the existing laws that govern the Banking and Non-Bank Financial Institutions. It is envisaged that these initiatives would remove any potential vulnerabilities in the banking landscape to ensure a safe and sound banking practices across the industry.

Another recent industry development is the Bank's quest to introduce a Deposit Insurance Scheme in the country and pursuant to this objective, he indicated that a feasibility study has been done by Global Business Solutions of Germany and financed by KFW of Germany. The study has since been approved by the Bank of Ghana, KFW and the Government of Ghana (GOG) through the Ministry of Finance.

Mr. Milison Narh went on to explain that Currently the Central Bank and the Ministry of Finance have reviewed and approved the Terms of Reference for the Legal consultants to draft a Deposit Insurance law for the industry.'' It is our expectation that the Deposit Insurance Agency would become operational by the end of December 2014 and that could afford some protection to all depositors''.

He however pointed out that the key challenge going forward to the banking industry is how to maintain the continued high levels of profitability over the medium to longer-term and more particularly, when the interest rate environment begins to shift its course.

''To the Bank of Ghana, it appears that among many other avenues for maintaining the bottom line such as massive cost cutting and growing non-fee-based income, the answer could lie in taking up the Small Medium Enterprises[SME] challenge - which in the words of a recent banking survey means harnessing the SME potential''.

Although the banking sector has not witnessed new entrants this year, the number of microfinance institutions licensed by the Bank of Ghana has more than doubled to 228 by June 2013, from 90 in December 2012. The increasing trend in acquisition of licenses by microfinance institutions signals the increasing demand by economic agents at the lower echelon of financial service provision.

The critical role that this segment of society plays in any economy cannot be overemphasised as various studies shows that promoting the development of SMEs can be used as a catalyst for economic growth, employment and poverty reduction. And yet, by their nature, SMEs are constrained from accessing financial services, especially through the major banks due to lack of proper governance, weak management systems, technical knowledge, and poor labour skills.

Although most banks are aware of the potentials of SMEs, however he added venturing into the sector requires painstaking efforts to help them overcome these constraints. Nevertheless, SME financing can be a good business for banks whiles a better understanding of the sector should provide enough incentives for banks to start and build business relationships with them.

To start with, it is important for banks to understand the mode of operation of SMEs and develop innovative financial services that suit those peculiar needs.

With such background knowledge, banks should seek to set up specialised desks to provide strong guidance for SMEs to address weaknesses in their financial management, handle SMEs appraisals, loan documentation and monitoring. ''These processes could set very high standards for SMEs financing and help lower risks associated with the financing sector'' he said.