Poor corporate governance practices and poor regulation by the central bank led to the collapse of the Capital and UT Banks, Dr. Richmond Akwasi Atuahene, a bank governance specialist and C.E.O of Universal Capital Management Ltd, has said.
Although the central bank has said it is going to investigate what exactly led to the “severe impairment” of the capital of the two banks, Dr Atuahene mentioned “ineffective and incompetent boards, mismanagement, poor risk appreciation connected or related to lending, and corruption,” as the reasons.
Most of the boards in the banking sector, he said, “do not possess, both as individual board members and collectively, appropriate experience, competencies and personal qualities, including professionalism and personal integrity.”
He added that: “Most board members do not conform to the principle 3 of the Core Principles Methodology of the Basel Committee on Banking Supervision (2005) on the board members and senior managers for fitness and propriety test.”
This, he said, has been the case due to “inaction” by the regulator of the industry – the Bank of Ghana.
Part of the central bank’s problem, he said, is that it is plagued with a lot of political interference, which has weakened its power to crack the whip on banks, and to conduct proper due diligence on individuals issued with banking licences.
“Bank of Ghana should have conducted proper due diligence on the owners, directors and senior managers continuously to find out whether they are suitable and fit to run the UT banking business,” he said.
“Bank of Ghana should develop and implement a mandatory code of corporate governance which will spell out detailed sanctions and penalties not only for the shareholders but also for the directors and senior managers of the banks.
Secondly, Bank of Ghana should also adopt a proactive and robust regulatory and supervisory framework to address future distress of non-performing assets in the banks,” he stated.
The BoG itself admits there is the need for banks to inject stronger corporate governance principles into their operations. It issued a Corporate Governance Exposure Draft in 2014 to elicit comments and contributions from the industry, including a review by the International Finance Corporate of the World Bank.
The new guidelines are expected to see the capping of the tenure of CEOs at a maximum of three 5-year terms, and the tenure of non-Executive Directors at two three-year terms.
The positions of Managing Director and Board Chair can also not be occupied concurrently in the case of foreign banks, whilst 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 annual accounts.