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Bank of Ghana seeks help to deal with troubled banks

The Bank of Ghana (BoG) says it is getting assistance from the International Monetary Fund (IMF) to design a scheme for resolving financial institutions that become highly troubled.


The Bank said this has become necessary in the wake of the global financial crisis of 2007 that saw a number of banks in advanced economies collapse under high debt and excessive risk-taking.


“It is inevitable that in every financial market some financial firms will experience difficulties. A key policy lesson is that an effective resolution scheme must be designed, so that governments can promptly and effectively resolve institutions that become highly troubled.


“Such regimes should minimise potential market disruptions as well as dampen moral hazard,” said Milisson Narh, Deputy Governor of the Bank, at the official re-launch of First Atlantic Bank in Accra.
“The Bank of Ghana is making efforts in this area with the assistance of the IMF,” he added.


Speaking on a theme of innovation, Mr. Narh said even as the BoG encourages domestic banks to innovate and leverage technology to facilitate banking, it is also mindful of lessons from the recent global financial crisis and is therefore guided by five important principles.


These include adhering to traditional banking standards such as capital adequacy rules and sound risk-management; keeping innovations simple; keeping incentives aligned throughout the process; ensuring that banks’ risk-management systems keep up with the pace of innovation; and developing a robust resolution scheme.


Additionally, bank directors and managements must understand the risks their institutions are exposed to, he said; and they should have members with risk-management experience to help monitor and control risk-taking.


“When innovation fails, the entire financial system pays the price -- and the lessons of the global financial crisis are still fresh in our minds. It is therefore necessary for bank managements to design the necessary control system to measure, mitigate, monitor and manage all inherent risks associated with the innovative products and services.”


He said with competition keener, banks must constantly innovate to survive.


“The traditional lines of banking businesses are shrinking and diminishing, and banks that do not innovate may face a dwindling number of customers and rising operational cost.


“In Ghana, with a significant proportion of the population unbanked, Kenya’s example shows that we can leverage mobile telephony, IT and other innovative products to deepen our financial sector -- something the Bank of Ghana encourages.”


He asked banks to invest in technologies that increase access and lower the cost of use of bank services.


Seventy percent of adults in Ghana do not have a bank account, according to the World Bank. The barriers to opening one include poverty, cost, travel-distance, and the amount of paperwork involved.

THEBFTONLINE.COM

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