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19.08.2019 Business Features

Ghana’s Savings And Loans Fiasco: Identifiable Weaknesses And Themes

Ghana’s Savings And Loans Fiasco: Identifiable Weaknesses And Themes
AUG 19, 2019 BUSINESS FEATURES

The aim of this post is to share a few thoughts on The Savings loans fiasco in Ghana.

My very first article appeared on Daily Guide and Modernghana and the theme was on Menzgold

Read More: Warning the Public was not Enough, Bank of Ghana: Case of how Bank of Ghana and other Regulators, Aided and Abetted Menzgold.

I have written extensively on Regulatory inertia in Ghana, following on from the collapse of Banks.

Read More: Bank Failures And Regulatory Inertia In Ghana : The Blame Game Commences

There is an article on Ponzi Schemes and the way to combat them in Ghana.

Read More: Combatting Wide-Spread Fraud And Ponzi Schemes In Ghana's Banking And Financial Services Industry

The Problem in Ghana is not that we are corrupt. Yes, every human being knows what is right from what is wrong. The issue Ghana faces is more about having adequate system and controls in place to ensure that there is no room for such things to happen.

Our laws and institutions particularly Companies Code, Registrar of Companies, Central Banks and other Financial Services Regulators need to continually evolve Companies Code, Registrar of Companies.

When directors and senior management are compliant with their fiduciary and reporting responsibilities things will look up.

For instance, in some Jurisdictions, if a company fails to submit annual returns and reports, they are struck off the register of companies. If such institutions are financial houses, they would have been struck off even before the financial regulator steps in.

Nothing compensates for lack of training and understanding of regulatory issues. If you want to be an entrepreneur, you must have knowledge or be able to access such key knowledge in law, finance, and accounting as a minimum.

From the key findings of the Central Bank, you can tell that most of these companies were not even on life support, they were walking Zombies. Perhaps a wrongful trading and fraudulent provisions should become part of our laws.

If we had wrongful or fraudulent Trading provisions most of the directors and senior management of insolvent banks and financial institutions could end up in prison, disqualified and or face financial penalties.

COMMON THEMES IDENTIFIED BY BANK OF GHANA REPORT ON SAVINGS AND LOANS COMPANIES 2019

Corporate Governance Lapses

  1. Weaknesses in corporate governance practices.
  2. Weaknesses in Board and Senior Management oversight, including the fact that the institution has been without a substantive Managing Director.

Capital Issues

  1. The institution’s capital adequacy ratio is negative
  2. The Institution cannot meet the deposit withdrawals of its customers with many customer complaints received by the Bank of Ghana.
  3. The institution has breached the statutory cash reserve ratio requirement

Accounting and Reporting Obligations

  1. The company neither published nor submitted its Audited Financial Statements.
  2. The institution failed to keep accounting records in a manner that gives an accurate and reliable account of its transactions which constitutes unsafe and unsound banking practice.
  3. Poor loan underwriting standards resulting in the impairment of loans.

Related Party Transactions

  1. Paying high rent expenses paid to the majority shareholder for the use of its premises.
  2. The institution assumed the liability of a loan contracted by the majority shareholder.

Potential Money Laundering Violations

  1. A recent investigation conducted revealed that a significant amount (USD 62,255,516.93, GBP718,528.59 and EUR4,200) of depositors’ funds held, had been transferred to another company owned by the Group based in the U.S.A).

These series of transactions were made without any documentation to support such transfers in breach of section 19 of the Foreign Exchange Act 2006, Act 723, Section IV of Bank of Ghana Notice No. BG/GOV/SEC/2007/4, and subsequent Bank of Ghana Notices issued in August 2014 prohibiting such practices.

The Way Forward

I hope these regulatory challenges will spur us to innovate and streamline operations within our financial service sector.

Whilst we are looking at these issues, the directors and senior management should be brought into account. In addition, Regulators should be brought to book for their culpability in perpetuating such lapses.

These issues have been discussed previously in other articles; we hope they will be addressed to avoid contagion.

This article will be re-produced on the international news aggregation website www.thefinancialcrime.com

Written by Kwadwo Kusi-Frimpong, a Financial Crime, Governance and Regulatory Expert, who has extensive experience working with banks and financial institutions in UK, Switzerland and The Netherlands.

He holds an LLM from University of Law and is a graduate University of Ghana and Said Business School, University of Oxford.

Assisted by Umar Mohammed (Ph.D. Economics at Ankara Yildirim Beyazit University). The team can be contacted at: [email protected] and [email protected]

Kwadwo Kusi-Frimpong
Kwadwo Kusi-Frimpong, © 2019

This author has authored 6 publications on Modern Ghana. Author column: KwadwoKusi-Frimpong

Disclaimer: "The views/contents expressed in this article are the sole responsibility of the author(s) and do not neccessarily reflect those of Modern Ghana. Modern Ghana will not be responsible or liable for any inaccurate or incorrect statements contained in this article."

Reproduction is authorised provided the author's permission is granted.

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