The Central Bank is planning to come up with an effective Deposit Insurance Scheme by 2015 that will ensure depositors in all financial institutions are covered in case of the institution’s collapse.

Governor of the Central Bank Dr. Henry Kofi Wampah said the move is part of measures to ensure a “consistent and transparent framework for intervention in the operations of regulated deposit-taking financial institutions”.

Deposit insurance is a measure implemented to protect bank depositors, in full or in part, from losses caused by a bank's inability to pay its debts when due. Deposit insurance systems are one component of a financial system safety net that promotes financial stability.

Speaking at a public discussion organised by the Institute of Statistical, Social and Economic Research (ISSER), Dr. Wampah added the Central Bank is also initiating steps that will strengthen its regulatory and supervisory regime by revising and consolidating existing laws and introducing guidelines such as corporate governance, licencing and external auditor regulations.

“It is our expectation that these initiatives will address potential vulnerabilities and ensure a safe and sound banking industry in the country,” he added.

Dr. Wampah, delivering a lecture on the topic “What does it take to build a stable and efficient financial sector for sustaining growth and structural transformation in Africa”, said financial sector development requires robust financial policies and regulatory frameworks.

“The absence of these could have disastrous outcomes as observed during the recent global financial and economic crises. When the financial sector functions well, it will have a significant impact on the economic development; while a malfunctioning one will impact the economy negatively,” he said.

According to him, efforts to develop the financial sector should focus on enhancing depth, access, efficiency, and stability -- adding that “these have underscored efforts in many African countries to build a safe, sound and stable financial sector”.

He added that “building an efficient financial sector is indispensable for sustained economic growth and structural transformation. This is why reforms in the sector have been ongoing for the past seven years”.

Despite the continent’s banking system making considerable strides over the years with improvement in balance sheets, capital base and an enhanced risk management, challenges still remain -- undermining its contribution to the real sector.

“Corporate lending is still in many cases focused on the short end of the market, and few banks engage in long-term ending while bank balance sheets tend to be dominated by short-term deposits.

“There is also a lack of adequate competition as the banking sector remains in many cases, oligopolistic, leading to inefficient pricing of financial assets,” he said.

Oligopoly is a market condition that exists when there are few sellers -- a result of which is they can greatly influence price and other market factors.

“Banks will have to continually review their risk management systems and explore new avenues to maintain the bottom line, with emphasis on cost rationalisation and growing other areas of income,” Dr. Wampah added.