The Bank of Ghana (BoG) is to implement new corporate governance guidelines for the banking sector next month, as it seeks to ensure that proper corporate governance practices are entrenched.
The new guidelines will see the capping of the tenure of CEOs at a maximum of three 5-year terms. The tenure of non-Executive Directors is also expected to be capped at two three-year terms.
Under the new guidelines, the positions of Managing Director and Board Chair cannot be occupied concurrently in the case of foreign banks.
Additionally, the size of bank Boards shall be limited, as well as the retiring age for Directors prescribed. Banks will also be required to disclose attendance at Board meetings by Directors in an annual accounts.
“The Corporate Governance Guidelines is ready. We expect that this will be out within the next two weeks for the banks to comply with,” Dr. Johnson P. Asiama, the Second Deputy Governor of the Bank of Ghana (BoG) told the B&FT.
He added that: “It is something that we are championing and the guidelines are clear on what banks can do. This guidelines would be brought out within the next couple of days.”
“I am in absolute support of the implementation of the corporate governance guidelines; it directs you; it allows banks to achieve their goals and objectives and ensure the protection of stakeholder interest in a formalised manner, making sure that there are independent structures to oversee those activities.” Judith Haizel, a banking professional said.
Ghana’s banking sector is dominated by the foreign and African owned banks from the United Kingdom, France, South Africa, Nigeria and other parts of the continent, with the local players lagging behind in terms of capacity.
Ghana, with a population of about 27million people and a Gross Domestic Product (GDP) of almost US$35billion, has 35 universal banks. About 17 out of the 35 fully licensed banks are of foreign origin.
Experts have raised concerns about the increasing number of universal banks, savings and loans and the over 400 micro finance companies in the country–all serving just about 7million people who have accounts or multiple accounts with any of the mandated financial institutions.
Analysts have called for the strengthening of existing banks; but the approach to achieve same have been diverse. While some bankers have advocated for the Central Bank to engineer mergers and acquisition, others are of the opinion that the market should be allowed to determine.
Already, the central bank has categorically stated that increment in stated capital is to strengthen banks and make them ready to compete with global players and not to force mergers and acquisitions in the industry, although it would welcome such moves.
Emmanuel Boakye, Assistant Director of Banking Supervision at the Central Bank, said in the last quarter of 2016, that a proposed re-capitalisation is intended to prepare the banking industry in readiness to offer the needed financial thrust to propel the economy to achieve the desired economy growth.
“The Ghanaian economy is growing and becoming increasingly complex and high valued financial transactions are likely to result in the near future. If we want to grow at an accelerated pace, then we need to build the capacity of our banks for embarking on bigger projects with sound capital base to absorb shocks without losing momentum.
The BoG is of the conviction that the time to inject capital is now, to enable banks meet the challenges of the growth of the economy. It should be possible for banks in Ghana to grant loans to finance projects abroad in competition with other global players,” he said.
He then added that the industry’s regulator will however not discount the possibility of mergers and acquisitions emerging as a result of the intended re-capitalisation exercise. “I believe it will be refreshing to see the industry go through mergers and acquisitions with its inherent advantages directed at the economy,” he added.
Managing Director of Zenith Bank, Henry Oroh, said 35 banks is quite a lot, noting that even in a bigger economy like Nigeria, only about 20 banks are in operation.
“Thirty-five looks too much and a huge capital base is better for any economy. The bigger the banks, the bigger the tickets and transactions they can handle and the better they can handle shocks,” he said.
Even though he is of the view that reducing the number is a good thing, he called for a more evolving and careful process instead of emergency and ad hoc approaches.
“If you put strange bedfellows together it has its own consequences. Consolidation and integration should be done carefully. For this economy, 20 banks will not be bad and a minimum capital requirement of GHC200million might make some banks struggle but they will raise it,” he added.
Francois Marchal, Deputy Managing Director of Societe Generale, also noted that with a growing economy, Ghana needs strong banks, saying the current number of 35 banks is just too high.
“The current number is too much for an economy like this. There are about 26million inhabitants. If you break it down, the potential customer base per bank is less than a million customers. With even one million customers per bank, it is not enough to sustain a bank in a normalised context in the long term,” he said.