The Bank of Ghana has released a revised, upgraded version of its Fit and Proper Persons Directive for significant shareholders, directors and key management personnel of banks, savings and loans companies and deposit taking non-bank finance houses. The new one is far more comprehensive than the one which preceded it last year, and if implemented properly will be crucially effective in ensuring that these institutions benefit from good corporate governance and consequent risk management principles and processes.
The recent melt down in Ghana’s universal banking industry which occurred between the second half of 2017 and the end of 2018 can be directly traced, in the main, to poor corporate governance involving poor board oversight, weal management and insider trading by connected parties in both aforementioned categories. The new fit and proper directives aim to forestall a repeat of such, by ensuring that only people with integrity and the right expertise and experience fill the to positions in Ghana’s banks at both the board and executive management levels.
However, while certainly very well-intentioned, the new directive establishes the grounds for lots of potential controversy. This is because even though the BoG has laid out clear principles, assessment criteria and procedures for the implementation of the new directive, the central bank inevitable will be exercising huge discretionary powers in that implementation. This is inevitable in that deciding who Is fit and proper requires a great deal of subjectivity in assessments.
Instructively, even when the central bank was using purely quantitative measures to take decisions on the fate of licensed banks facing insolvency last year, many public commentators accused it of bias, mostly of a political nature. Even though most of this criticism, if not all of it was unfair, deriving from lack of technical understanding by the commentators themselves, it did little to enhance the BoG ‘s direly needed credibility as an independent institution.
That reputation has been made more fragile by the way the BoG has accommodated government’s initiative to support the recapitalization of some selected indigenous banks through the Ghana Amalgamated Trust initiative. Both the selection of the banks – which the BoG did not do itself but which it has accepted – and the delay in recapitalization which it has accepted despite its earlier repeated warnings that its deadline would not be moved, have opened the central bank to admittedly uncharitable if not completely inaccurate accusations of pandering to government’s wishes.
This newspaper fears that the exercise of its discretionary powers in deciding who is fit and proper and who is not will lead to even fiercer and more uncharitable accusations against it especially by the political opposition where one of its own is adversely affected.
Therefore we suggest that a clearly independent, but clearly competent panel of appeal be established to rule over protests that generate such impending controversy. We admit that this would weaken the BoG ‘s stature as regulator but under the circumstances we think this would be better than weakening its credibility.