By: Anthony Sedzro
Head of Financial Institutions and Capital Market Practice Group, and Partner at Ghanaian law firm, Bentsi-Enchill, Letsa & Ankomah (BELA), has called for the yet to be established Deposit Protection Corporation to be operationally independent of the Bank of Ghana.
Seth Asante, the Head of Financial Institutions and Capital Market Practice Group, and Partner at Ghanaian law firm, Bentsi-Enchill, Letsa & Ankomah (BELA), believes that operational independence will allow the corporation to scrutinize banks more and get to know which of them is deserving of deposit protection.
The Ghana Deposit Protection Act, 2016 (Act 931) was enacted on the 11th of October 2016. The Act applies to Banks and Specialised Deposit–Taking Institutions licensed by the Bank of Ghana. The Act provides the framework for the establishment of the Deposit Protection Scheme, the Deposit Protection Fund, and the Deposit Protection Corporation. The object of the Act is to: “Protect small depositors from loss incurred by depositors as a result of the occurrence of an insured event; Support the development of a safe, sound, efficient and a stable market-based financial system in Ghana.”
In Ghana, the collapse of micro-finance institutions, DKM and God is love, leading to the loss of the funds of depositors, shook the banking system’s confidence. The recent takeover of UT and Capital banks is still fresh in the minds of the public. The Deposit Protection Act was enacted to provide some cushion for depositors in the event of such unfortunate occurrences.
Seth Asante, who was speaking at the Graphic Business/Stanbic Bank Breakfast Meeting on February 6, 2018 at the Labadi Beach Hotel, Accra on the theme: ‘Deposit insurance: A catalyst for a stronger banking industry,’ said that the “reason why it should be independent is…the idea that you are collecting premiums and using it to pay failing banks. It means that you should have an inside knowledge as to what is happening in all the banks and be able to actually exercise some examination to make your decisions.”
He went on: “The lack of any operational independence in doing that will affect the viability of the fund because, in the end, there’s no inside knowledge as to how banks are operating – whether a particular bank is operating in a manner that allows it to benefit from the fund or not.”
The Deposit Protection Corporation currently will have the Governor of the Bank of Ghana as the Chairman. Two other officials of the BoG will also be members. According to Asante, this operational independence should actually be seen by the fact that the Board of the corporation should itself be independent. He says this also infringes international best practices when he spoke to GB&F magazine at the event.
“If you look at the core principles from the International Association of Deposit Insurers, one of the key issues is that the Central Bank Governor should not be the Chairman of the corporation but, in this case [of Ghana], that is what it is. Even though we have been assured that overtime it will change, we need to deal with what it is now,” he said.
At the same event, Franklyn Belnye, the Project Coordinator of the Ghana Deposit Protection Corporation, explained that the Deposit Protection is not a new concept. However, after the global financial crisis of 2008, many countries have adopted it. He said that issues that had come up relating to some aspects of the law would be rectified through the amendments that would be put before Parliament soon. Notably, he said part of the amendments will see two (2) independent persons coming to replace the two Central Bank officers who are members of the corporation.
Earlier, Dr. Ernest Addison, the Governor of the Bank of Ghana, had said that the many complex collaborations taking place in Ghana’s financial system means deposit protection was needed. “So we can have the most prudent application of banking rules, have the most effective oversight over the financial sector to anchor stability but then, you also need that deposit insurance scheme to provide the additional safety net to boost confidence in the financial sector especially for small depositors,” Dr. Addison said.