Thursday, 25 January 2018

BoG cautioned to ‘check over lending’ by banks after recapitalization

Adnan Adams Mohammed

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Economist, Dr. Ebo Tuckson has warned that the banking sector may see another high Non Performing Loans (NPL) if measures are not instituted to check over lending after banks meet the new capital requirement.

This is due to the fact that, as the commercial banks recapitalise, more liquidity will be push the banks to look for businesses even if at cheaper returns or at a high risk.

He urged the Bank of Ghana to be strict and ensure that bank’s NPL does not go beyond 10 percent since it could have a negative impact on the financial system.

The Bank of Ghana has therefore been advised to intensify its supervisory roles to prevent over lending by banks that may meet the new capital requirement.

Also, some financial observers have raised concerns that banks that may meet the minimum capital requirement of GHC400 million may be tempted to lend above the required threshold due to the new capital base.

The observation follows concerns raised by the International Monetary Fund(IMF), urging the central bank to implement the provisions in the Basel Two agreement to avert such a situation.

“I think the central bank’s supervision should be enhanced. I think the point the IMF has been making is that the central bank should be tough on controlling NPL. It looks as if there are loopholes in the banking system. Who are those collecting the loans and defaulting?” Dr Turkson asked.

Dr. Tuckson maintained that the central bank must compel banks to use the Credit Reference Bureau system to avoid loans that may go bad.

“If we have a very good Credit Reference Bureau in this country, [the law have been passed and I’m expecting the case], then it should be possible that high-risk persons are identified before loans are advanced to them,” he said.

“But if the banks are not using these institutions to ensure that these loans don’t go bad. I think the Bank of Ghana has to be tough with the banks and monitor them closely,” he added.

However, the Central bank explain that, the new minimum capital requirement offered valuable opportunities for consolidation within the Banking industry and encouraged small and under-capitalised banks with corporate governance challenges among others to merge and consolidate their operations.

Moreover, it has called on banks to improve the quality of their risk management system, corporate governance and internal control practices.

The regulator of the banking industry blieves that, the implementation of sound risk management practices, banks would be able to access and set aside the appropriate capital needed for inherent operational risks as required under the capital requirement directives and the Basel ll and III frameworks.

Special Advisor to the Governor, Mrs Grace Akrofi, speaking in an interview said, the BoG wants to ensure that, the banks comply with the international financial reporting standards.

"This is to guarantee uniformity in the presentation of financial accounts and accompanying notes to financial accounts," she added.

Meanwhile, some commercial banks have praised the Central Bank’s decision to place a temporary ban on the licensing of new banks this year.

The commercial banks say the move will sanitize the industry even as they prepare to meet the new minimum capital requirement set by the BoG.

“That might be the regulator’s decision but that notwithstanding, I think we have had flood of banks in the country now. I believe what BoG wants to do is to ensure that we have quality financial institutions who will do what they said they will do but not just bringing banks onboard” Head of Retail Banking at FBN Bank, William Amon Neequaye said.

The BoG last year announced that it will not license new banks in 2018 to allow the regulator sanitize the banking system to ensure efficiency and also create space to strictly implement the new capital requirement of GHC400 million.

Currently, there are about 35 banks in the country.

But Mr. Amon Neequaye speaking said the BoG must ensure the banking industry is strengthened.

“The banks that are coming onboard should also have the financial muscle to support the development of the country. So the regulator deciding not to bring more banks onboard I don’t think will be a final decision. I believe after the bank has done all that it needs to purge the system, they will definitely open the gates again” he stated.

Earlier, Banking Consultant Nana Otuo-Acheampong was of the view Ghana’s Banking sector may experience some stability due to the decision of the BoG to ban the licensing of new banks in 2018.