Financial Liberlisation Is A Challenge To Banking Sector

Results of an unpublished study, which examined the effects of financial liberalisation on banking supervision in Ghana, has shown that even though the relatively tiny West African nation was among the first in the developing world to radically transform its financial sector, there is little impact of this on efficient banking supervision.

The research, which was conducted by a Ghanaian student, James Azamesu, in the UK, with specialisation in International Finance and Banking, aimed at ascertaining the response of Ghana's banking industry to the dynamics of open market forces as a consequence of the country's financial reform policies.

The study discovered that among agencies, such as the securities, stock exchange, etc, banking is the main financial intermediary in Ghana. It analysis the effects of financial globalisation on less developed countries (LDCs) and argued that as an emerging market, Ghana's economy attracted increased global capital flow over the period starting from the late 1980's, climaxing into the mid 1990's.

The findings established that the unprecedented relative influx of capital accounts which was engineered into the economy in the process, created a panicking awareness during the period for the country's financial sector towards its responsibility for effective banking supervision and regulation. It noted that this phenomenon, which is an inevitable pre-requisite in a liberalised market, lacked the needed stimuli and dynamism in the case of Ghana to respond appropriately. The study, among other things, attributed this to the country's historically inherent economic and related socio-political cultures and the lacks of governmental will, which are transformed into prolong policy weaknesses and procedural inconsistencies. The research analysed various interventions and indicator variables and noted that financial liberalisation still has a stiff challenge for developing countries. It pointed out that among the economic sector engines the banking industry appears the hardest hit in this vein.

The findings suggest that for the country's banking industry to be able to contain these challenges such as effects of inward international capital flows and increased domestic financial activities, effective banking supervision is crucial. According to the study, this option is against the backdrop which suggests that a financially opened economy, is susceptible to an induced increased investment, domestic capital mobilisation, banking competition and capital adequacy exigencies. The reactive micro and macro economic dynamics of these in a hemorrhaging system, occasioned by bank supervisory deficiency and regulatory lapses, it emphasised, can lead to a contagion of volatility of financial crises and repression, bank run, high non-performing assets portfolios and industry debt over- hang. The study cited categorically, the collapse, about four years ago of the Ghana Co-orperative Bank, and the Bank for Housing and Construction, the present huge debt portfolio of say, the National Investment Bank, Ghana Commercial Bank, as well as the comparatively poor assets management of others, as typical pointers.

The study categorised all these as economically repressive challenges with corresponding critical implications for Ghana's pattern of banking supervision. The investigation exposed the industry's insufficient prudential regulatory scope necessary to manage supervisory pressures and resultant expanded financial activities when measured against the country's pre-reformed standards. It established opportunities for risk exposure to internal and cross- boarder frauds, abuse of depositors' interest, strategic foreign exchange transactional regulation and control.

The lack of appropriate expertise to manage risks in a liberalised market, which is also prone to hyper inflationary syndromes on the Ghanaian domestic currency (the Cedi) and the effect of this on effective supervision had been identified. It listed Ghana's banking system's lack of a strong and impartial supervisory machinery, appropriate accounting and audit systems and relative independent management policies as main problems confronting the industry. The research acknowledge that having found itself in a new market environment, Ghanaian banks, like any others in the developing world, are arguably susceptible to difficulties identifying separate sets of regulatory objectives and mechanisms that covers main categories of financial activities. The resultant effect of these, the study argues, is the present inevitably gapping mismatch between the regulation of functions and regulation of institutions thus, partially creating complex dealings with take-overs, mergers and acquisitions, such as the ill-fated Ghana Commercial Bank bid.

BANK OF GHANA AS SUPERVISORY MACHINERY

The study, which also examined and analysed the supervisory machinery of the Bank of Ghana, noted technical inadequacies in its operations and observed that the system as it is presently is inconsistent with modern requirements in a liberalised banking environment. It noted for example the absence of clear-cut best practice laws to address bankruptcy cases, industrial disputes, customer protection and shareholder interests as typical militating forces against the industry's growth as a viable economic agent. The study argued, "banking supervisory frameworks in Ghana must be dynamic and proactive, to closely link and mirror domestic financial sector and economic conditions for which it has been created". It further advocated for supervisors' sensitivity towards systemic risk, moral hazards and adequate market integrity. It findings established that by virtue of its domestic economic structural imbalances, the banking public in Ghana suffers from the vices of inadequate information - a phenomenal trend that make them liable to abuse by banks. The study explained this using various banking regulatory theories, tested applications and methodological triangulations and lamented that the present non-articulate nature and unstructured quality of the central bank's supervisory regime, is in itself, a recipe for public lack of confidence in banking. It pointed out that as this happens, huge asset-based multinational banks, with multi-purposed resources, technology and complex operational strategies operating in the country, takes advantage of the BoG's lapses. Resultantly, these banks do not only impose unilateral astronomical high interest rates, bank charges and undue costs on innocent customers, but also manipulates, executes and engender economically inimical foreign exchange transactional risk exposures.

BASEL CAPITAL ACCORDS

On the Basel Capital Accord, the study argued that Ghana need a dramatically prone technical human resource capacity and orientation, such as trained international financial experts, economist and high caliber bankers, to live up to the prescribed supervisory standards of Basel Committee. The findings, substantially argued that even though the best banking practices in the developed worlds are an enhancing starting points for good supervisory frameworks, single approaches from Basel Accords, the IMF and World Bank prescriptions can hardly fit all types of global banking. The study therefore recommended the streamlining of internal banking supervisory structures, both human and material by Ghana's financial sector to conform to domestic socio-economic and political cultures within the context of an emerging market. In this vein, the research identified and suggested variously feasible technical mechanisms, formulars and solutions, which it admit, could be worked out in conjunction with multinational financial institutions, such as the IMF, World Bank, the Basel Committee and regionally centred developing countries to reflect common economic, cultural and political characteristics as frameworks. The study concluded by urging policy makers in Ghana to structurally de-link the country's financial system of its presently over-politicised policies to allow it to engage in the facilitation of the needed rapid economic transformation, intermediation, efficient capital mobilisation, allocation and good governance.

Comments on the above would be appreciated and can be addressed to the Author.
Email: jamkwab@yahoo.com