Governor Warns Ghanaian Banks - To Improve Risk Analysis or Face Crisis

The Governor of the Bank of Ghana, Mr. Paa Kwesi Amissah-Arthur, has cautioned Ghanaian banks to “increase their in-house capacity for risk analysis in the emerging oil and gas sectors” as they focus their attention on the industry.

According to the governor, poor risk analysis in the oil and gas sector is what created the near-major crisis in Nigeria, but for the timely intervention of the country's Central Bank, which took over the five banks involved.

Mr. Amissah-Arthur said the recent crisis that hit the financial sector of the United States of America with a domino effect on the rest of the world has left lessons for policy makers and bankers.

He said the crisis originated from the sub-prime mortgage sector of the banking system and brought major financial institutions to their knees, affecting hitherto remotely related economies.
He disclosed that the affected banks were opening their books to these sectors for the first time and “from hindsight, it is obvious there was poor risk analysis of exposures to these sectors”.
He said it was not enough to blame the crisis on the lack of expertise, as it was the banks' responsibility to build capacity. He therefore advised banks to invest in capacity building in risk management, especially for emerging sectors of the Ghanaian economy.
Mr. Amissah-Arthur was speaking on ‘Risk Management in Well-Capitalised Banks' at the launch of the PriceWaterhouseCoopers Ghana Banking Survey on Thursday, June 10, 2010.
He opined that Ghanaian banks have many lessons to learn from developments in Nigeria and in the West, the first of which was that “poor risk analysis can have a debilitating effect on banking operations” and that “ignoring the dangers of credit market operational risks, even in a situation of high capital, can be problematic”.
According to the governor, banking is not simply about deposit, mobilization and lending but about risk analysis and strategic deployment of funds to earn commensurate returns at minimal risk.
"Banking is not about bigger balance sheets or the fastest growing banks, although size and growth-rate are important dynamics in banking,” he assessed, emphasizing the need for the regulator to live up to their “guard dog” responsibilities to the public, notwithstanding the fact that “when greedy people see an opportunity to make 'easy money' it is difficult to stand in their way”.
He therefore called on regulators to sit up and become more proactive in the discharge of their functions, pointing out that, “It is not enough to react to crisis; the aim must be to pre-empt them.”
He assured of the Central Bank’s focus on dealing with any potential crisis in the banking sector and expressed hope that its counterparts, the Securities and Exchange Commission (SEC) and the National Insurance Commission, would also “reposition themselves for the challenges that lie ahead for a well capitalized financial system”.
He said the need for strong, well-capitalized and viable banks is underscored by the fact that the banking industry was one of the few sectors where shareholders’ funds are only a small proportion of the liabilities that banks hold.
And this imposed the necessity for the strong regulation of the banking sector.
Mr. Amissah-Arthur outlined some benefits of appropriate capitalization of the industry brings to banks, emphasizing that the downside is where risk management is not given the requisite attention. (See Page 7 for the full Speech of the Central Bank Governor). The Business Analyst - businessanalystgh@yahoo.com