The International Monetary Fund (IMF) in its 2003 Financial Sector Stability Assessment (FSSA) Update mentions the results of a 2000-2001 Financial Sector Assessment Program (FSAP) for Ghana, which was not published. The 2003 FSSA Update indicated that Ghana had a high degree of compliance with the Basel Core Principles for Effective Banking Supervision. Nonetheless, the report also pointed to several significant shortcomings, particularly in the legal framework. These include the lack of operational independence of the banking sector supervisor, the Bank of Ghana (BoG); political interference from the Ministry of Finance and Economic Planning; inadequate information sharing among supervisors; weak supervision of foreign branches of domestic banks; the absence of anti-money laundering legislation; and the lack of rules on consolidated supervision. According to the 2003 FSSA the passage of the Banking Act would rectify most of the shortcomings pertaining to the legal framework. This bill was passed in 2004 as Banking Act No. 673. The IMF's 2007 Article IV Consultation report on Ghana notes that the regulatory environment in Ghana for banking supervision is largely adequate and the banking sector is well-capitalized, liquid, profitable, and meets international capital adequacy standards. The report also mentions that a BoG self-assessment indicated that Ghana has incorporated the IMF's FSAP recommendations.

General Overview

The International Monetary Fund (IMF) in its 2003 Financial Sector Stability Assessment (FSSA) Update mentions the results of a 2000-2001 Financial Sector Assessment Program (FSAP) for Ghana, which was not published. The 2003 FSSA Update found that Ghana "exhibited a high degree of compliance with the [Basel Core Principles for Effective Banking Supervision], but noted significant shortcomings in several areas" (p. 24). These included the lack of operational independence of the banking sector supervisor, the Bank of Ghana (BoG); political interference from the Ministry of Finance and Economic Planning; inadequate information sharing among supervisors; weak supervision of foreign branches of domestic banks; absence of anti-money laundering legislation; and the lack of rules on consolidated supervision. However, the FSSA Update, noted that the passage of the 2003 Banking bill (now the Banking Act of 2004) would strengthen the legal framework for banking supervision; enhance the operational independence of the BoG; introduce consolidated supervision; and enable information sharing with other regulators. This bill was passed in 2004 as Banking Act No. 673.

The IMF's 2007 Article IV Consultation report on Ghana mentions that the BoG, the country's central bank, conducted a self-assessment on Ghana's compliance with the 2003 FSSA recommendations by the IMF, and that the self-assessment found full compliance with the recommendations. Moreover, the IMF notes that the financial sector in Ghana is fairly stable and healthy, and the regulatory environment is largely adequate. However, supervision needs to be strengthened and brought in line with the Basel II regulatory system, which emphasizes risk-based supervision. The 2005 U.S. DoS report mentions that Ghana has endorsed the Basel Core Principles for Effective Banking Supervision.

In response to the IMF recommendation, the BoG introduced its framework for Risk-Based Supervision "as a precursor to the full implementation of the Basel II Accord" (BoG 2006, p. 30). The BoG, as per its 2006 Annual Report, will also require banks under its supervision to enhance their risk-management systems and functions so as to ensure their safety and soundness.

Another 2007 IMF report on Ghana talks about the transformation taking place in Ghana's financial system, which is leading to a deepening of the financial markets and increased competition in the banking sector. This however has brought new challenges to financial sector supervision. As the report notes, the Ghanaian authorities have responded by launching a Financial Sector Strategic Plan (FINSSIP) in 2003 to carry on with further reforms. Working with the IMF, Ghana has also planned a joint financial sector strategy note to assess progress with the reforms.

The banking sector was found by both of the 2007 IMF reports to be well-capitalized, liquid, and profitable, and meeting international capital adequacy standards. The ratio of broad liquid assets to short term liabilities was found to be above 70 percent in 2003-2005. In 2006, the BoG gave an impetus to banks' liquidity levels by eliminating the secondary reserve requirement for deposit-money banks. However, the banks were warned to establish better risk management practices given greater exposure to the private sector.

The 2007 IMF report on Selected Issues also notes that the banking sector dominates Ghana's financial system, accounting for more than a third of the GDP and two-thirds of the financial system's total assets. The three largest commercial banks include a majority government owned bank, the Ghana Commercial Bank and two majority foreign-owned banks. Internationally reputed banks are coming in, holding out the hope of increased competition, cost efficiency, and know-how. A banking survey conducted in Ghana by PricewaterhouseCoopers and published in 2007 finds that the growth and profitability of the sector is increasing manifold, and that during the period 2002-2006, net profits grew by about 100 percent.

The Principles

1. (1) Clear responsibilities and objectives for each supervisory agency.

II

The 2003 IMF FSSA Update on Ghana observed that a 2003 Banking Bill, if passed by Parliament, would enhance central bank responsibilities and have clear rules and procedures for banking supervision. The bill was subsequently passed as the Banking Act No. 673 of 2004. However, there is little information publicly available regarding the effectiveness of this Banking Act subsequent to the 2003 FSSA Update.

A 2007 IMF report on Selected Issues in Ghana notes that the "supervision of the financial system has improved significantly," (p. 49) with the BoG implementing the 2003 FSSA recommendations. The BoG has continually upgraded the supervisory skills of its staff and the quality of its supervision. Further, the report notes that the BoG has published a Financial Stability Report (FSR) since 2004. The FSR reports on the banks' balance sheets, financial soundness indicators, and stress test analyses. Ghana also plans to improve its legal system to enhance creditor confidence and accelerate financial deepening. Prudential regulation is being tightened and renovated, and the BoG's supervisory capabilities are being reinforced.

The BoG website discloses that the BoG was established in March 1957 under the Bank of Ghana Ordinance of 1957, passed by the British Parliament two days before Ghana gained independence. The principal responsibilities of the BoG were laid down in the 1957 Ordinance: "to issue and redeem bank notes and coins: to keep and use reserves and to influence the credit situation with a view to maintaining monetary stability in Ghana and the external value of the Ghana pound; and to act as banker and financial adviser to the Government" (BoG website). The website also enumerates the amendments to the Ordinance and the laws that govern the BoG as of 2007. The Bank of Ghana Ordinance was repealed by the 1963 Bank of Ghana Act, which was later amended by the 1965 Bank of Ghana (Amendment) Act. The 1992 Bank of Ghana Law subsequently repealed the 1963 and 1965 Acts. The BoG website adds that the responsibilities of the BoG as the banking sector regulator are defined in the Banking Act and the Bank of Ghana Act. They are: "to regulate, supervise and direct the banking system and credit system to ensure the smooth operation of a safe and sound banking system; to appoint an officer designated as the head of Banking Supervision Department, who shall be appointed by the Board; and to consider and propose reforms of the laws relating to banking business". The BoG also states on its website that it exercises its supervisory powers consistent with the Basel Core Principles. Apart from this, there is insufficient information publicly available on which to base our assessment of Ghana's compliance with this principle.

1.(2) Operational independence and adequate resources.

EN

The 2005 IMF report observes that one of the principal recommendations of the 2003 FSSA was to reinforce BoG independence, adding that Ghana has successfully implemented that recommendation with the passage of the 2004 Banking Act. The 2003 IMF report on Selected Issues in Ghana indicated that the passage of the Banking Act would enhance the BoG's independence, operational efficiency, and supervisory powers. The report further mentions that the Act would reduce political interference and involvement in the banking system, ensure greater transparency in the regulatory framework for banking, and enhance the BoG's operational autonomy so that it could act more assertively in enforcing prudential regulations. The bill was passed in 2004 as Banking Act No. 673.

1.(3) A suitable legal framework for authorization and ongoing supervision.

II

A 2003 IMF report on Selected Issues in Ghana mentions that a draft Banking Act, if passed by Parliament, would bolster the banking supervision provisions of the 2001 Bank of Ghana Act by clarifying the rules and procedures. The bill was subsequently passed as the Banking Act No. 673 of 2004. According to the 2006 BoG Annual Report, the BoG has introduced a new licensing policy to ensure a sound and well-capitalized financial system. Under this policy, the BoG allows only "well established foreign banks" to enter the Ghanaian banking system (p. 30). However, there is insufficient information publicly available regarding Ghana's compliance with this Principle.

1.(4) A suitable legal framework to address compliance with laws as well as safety and soundness concerns.

II

There is insufficient information publicly available regarding Ghana's compliance with this Principle. However, according to a 2003 IMF report on Selected Issues in Ghana, a draft Banking Act, if passed by Parliament, would bolster the banking supervision provisions of the 2001 Bank of Ghana Act and shift the authority to change the capital adequacy ratio (CAR) for banks from the Minister of Finance and Economic Planning to the BoG. The bill was subsequently passed as the Banking Act No. 673 of 2004.

1.(5) Legal protection for supervisors.

II

There is insufficient information publicly available addressing Ghana's compliance with this principle.

1.(6) Arrangement for sharing of information between supervisors and protection of confidentiality of shared information.

II

The 2003 IMF FSSA Update on Ghana notes that a draft Banking Act, if passed by Parliament, would grant the BoG the power to cooperate for purposes of information sharing with other relevant financial supervisors, including the National Insurance Commission. The bill was subsequently passed as the Banking Act No. 673 of 2004. However, there is insufficient information publicly available addressing Ghana's compliance with this principle.

2. Clearly defined permissible activities for banks and control of the use of the word 'bank'.

II

There is insufficient information publicly available addressing Ghana's compliance with this principle. However, a 2003 IMF report on Selected Issues in Ghana mentions that a draft Banking Act, if passed by Parliament, would shift powers to grant licenses from the Minister of Finance and Economic Planning to the BoG and lay down stricter licensing requirements. The bill was subsequently passed as the Banking Act No. 673 of 2004. According to the 2006 BoG Annual Report, it has introduced a new licensing policy to ensure a sound and well-capitalized financial system. Under this policy, the BoG allows only "well established foreign banks" to enter the Ghanaian banking system (p. 30). In spite of the above information, there is little information publicly available addressing Ghana's compliance with this Principle

3. Criteria for structure, directors, operating plan, controls, financial condition and capital base.

II

According to the 2006 BoG Annual Report, it has introduced a new licensing policy to ensure a sound and well-capitalized financial system. According to the same report, under this policy, the BoG allows only "well established foreign banks" (p. 30) to enter the Ghanaian banking system. Apart from this, there is insufficient information publicly available regarding Ghana's compliance with this principle.

4. Authority to review and reject transfer of ownership.

II

There is insufficient information publicly available as to Ghana's compliance with this principle.

5. Authority to review major acquisitions and investments.

II

There is insufficient information publicly available addressing Ghana's compliance with this principle.

6. Minimum capital adequacy requirements (meet Basle Capital Accord for internationally active banks).

II

There is insufficient information publicly available directly addressing Ghana's compliance with this principle. However, The 2007 IMF Article IV report and the 2007 IMF report on Selected Issues in Ghana both state that as of 2006, Ghanaian banks are generally well capitalized and meet minimum capital requirement of 10 percent set in 2006, and most surpass it with an average CAR of 17 percent. The 2006 BoG Annual Report also attests that all banks under its supervision had the minimum capital of Ghanaian Cedi (GHC) 70 billion (amounting to a capital adequacy ratio of 10 percent) required by the BoG for universal banking business by December 31, 2006. The 2003 IMF FSSA Update on Ghana noted that a draft Banking Act, if passed by Parliament, would give the BoG the authority to define capital adequacy requirements for banks. The bill was subsequently passed as the Banking Act No. 673 of 2004. The 2003 FSSA Update observed however, that many local Ghanaian banks and other financial institutions were allowed to operate without meeting CARs set by the BoG.

7. A method exists for the evaluation of procedures related to loans, investments and portfolio management.

II

The 2003 IMF FSSA Update on Ghana notes that a draft banking Act, if passed by Parliament, would enable the BoG to issue internationally aligned loan classification and provisioning requirements. The bill was subsequently passed as the Banking Act No. 673 of 2004. However, there is insufficient information publicly available regarding Ghana's compliance with this principle.

8. Policies, practices and procedures for evaluating the quality of assets and the adequacy of loan loss provisions and reserves.

II

The 2007 Article IV Consultation report by the IMF appears satisfied at the quality of assets and the low levels of nonperforming loans of Ghanaian banks and also finds that loan provisioning is adequate. The report also found a declining trend in nonperforming loans, with the ratio declining to 7.5 percent of total loans due to growth in loan assets as well as loan recovery. The 2003 IMF FSSA Update on Ghana had noted that a draft Banking Act, if passed by Parliament, would enable the BoG to issue internationally aligned loan classification and provisioning requirements. The bill was subsequently passed as the Banking Act No. 673 of 2004. However, there little further information publicly available as to Ghana's compliance with this principle.

9. Prudential limits and management information system on concentration of exposure.

II

A 2007 IMF report attests that Ghana has taken substantial steps to enhance its management information system with the passing of the Credit Reporting Law, which set up a reporting bureau, to be operational before end 2007, and to which all banks must submit credit details of their customers. The report observes that this will potentially enhance information flow, bring transparency and reduce lending risks. The exposure of a systemically important bank to the Tema Oil Refinery has also been reduced by securitization of the loan by the government in 2001-2002 and by a planned divestiture of the refinery. However, there is insufficient information publicly available as to Ghana's compliance with this principle.

10. Arm's length rule and monitoring for connected lending.

II

There is insufficient information publicly available as to Ghana's compliance with this principle.

11. Policies and procedures for country risk and transfer risk.

II

There is insufficient information publicly available on Ghana's compliance with this principle.

12. Measuring and monitoring market risk. Limit and/or specific capital charge on market risk exposure.

II

The 2003 IMF FSSA Update on Ghana recommended that Ghana enhance the BoG's power and capacity to monitor market risk exposure of the banks it supervised. However, there is insufficient information publicly available as to Ghana's compliance with this principle.

13. Comprehensive risk management processes.

II

The IMF's 2007 Article IV Consultation report notes that Ghana intends to move towards a risk-based supervisory framework more in line with the Basel II approach. The BoG also intends to encourage banks to strengthen their risk management practices. Another 2007 IMF report discloses that Ghana has taken substantial steps to enhance its risk management processes and has applied the recommendations of the 2003 FSSA Update to contain the major risks of its banking sector. The BoG states in its 2006 Annual Report that it has introduced its framework for risk-based supervision "as a precursor to the full implementation of the Basel II Accord" (p. 30). The BoG will also require banks under its supervision to enhance their risk management systems and functions so as to ensure their safety and soundness. The 2007 IMF report also finds that, in 2006, the minimum capital requirement for banks was increased and met by all banks, thereby building a safeguard against asset quality deterioration. Further, Ghana passed the Credit Reporting Law, which set up a reporting bureau that will be operational before end 2007. At that time, all banks must submit credit details of their customers to the bureau. This will potentially enhance information flow, bring transparency, and reduce lending risks. The exposure of a systemically important bank to the Tema Oil Refinery has also been reduced by securitization of the loan by the government in 2001-2002 and by a planned divestiture of the refinery. Apart from this, there is insufficient information publicly available as to Ghana's compliance with this principle.

14. Adequate internal controls.

II

There is insufficient information publicly available addressing Ghana's compliance with this principle.

15. Strict "know-your-customer" rules and high ethical and professional standards.

NC

The 2005 U.S. DoS report notes that, as of August 2005, the BoG was finalizing a draft law on money laundering. However, it also observed that the banking sector still lacked a strong regulatory framework against money laundering and other suspicious transactions. The BoG website also indicates that Ghana does not have a comprehensive anti-money laundering law as of 2007.

16. Effective supervisory system consisting of on-site and off-site supervision.

II

The IMF's 2003 FSSA Update noted that the BoG had taken substantial steps to modernize its on-site and off-site supervisory processes through capacity building, computerized auditing procedures, stricter licensing procedures, and more streamlined on-site inspection reports. However, there is insufficient information publicly available as to Ghana's compliance with this principle.

17. Regular contact with bank management and understanding of bank's operations.

II

There is insufficient publicly available information on Ghana's compliance with this principle.

18. Analytical reports and statistical returns on solo and consolidated basis.

II

There is insufficient publicly available information as to Ghana's compliance with this principle.

19. Independent validation of supervisory information through on-site examination or external auditors.

II

The 2003 IMF FSSA Update on Ghana commended the BoG on its progress in modernizing its onsite and offsite supervisory procedures. However, there is little publicly available information as to Ghana's compliance with this principle.

20. Ability to supervise on a consolidated basis.

II

According to the 2003 IMF FSSA Update on Ghana, a draft Banking Act, if passed by Parliament, would grant the BoG the ability to supervise banking groups on a consolidated basis. The bill was subsequently passed as the Banking Act No. 673 of 2004. However, there is little publicly available information as to Ghana's compliance with this principle.

21. Consistent accounting policies and practices that provide a true and fair view of the financial condition of the bank.

II

According to the IAS Plus website maintained by Deloitte & Touche Tohmatsu, Ghana adopted the International Financial Reporting Standards on January 1, 2007, thereby replacing the local Ghana National Accounting Standards. IFRSs became applicable for all listed companies and banks. Besides this report, there is little information publicly available addressing Ghana's compliance with this principle.

22. Adequate supervisory measures to ensure timely corrective action.

II

The IMF's 2005 Article IV report on Ghana mentions the 2000-01 FSAP recommendation to the BoG to create a system of reviewing risk-management procedures of banks under its supervision and take appropriate corrective actions, as needed. In this regard, the 2005 report informs that per the FSAP recommendation, BoG reviewed the risk management approaches taken by banks and as a result liquidated three banks in 2000. Also, BoG's enforcement powers were further enhanced by the passing of the Banking Act in 2004. However, there is insufficient information publicly available as to Ghana's compliance with this principle.

23. Banking supervisors must practice global consolidated supervision over their internationally-active banking organizations.

II

There is insufficient publicly available information as to Ghana's compliance with this principle.

24. International exchange of information with other supervisors.

II

There is insufficient information publicly available regarding Ghana's compliance with this principle.

25. Supervision of local operation of foreign banks and information sharing with home country supervisors.

II

The 2003 IMF FSSA Update on Ghana finds that a draft Banking Act, if passed by Parliament, would give the BoG the power to cooperate for purposes of information sharing with home country banking supervisors of foreign-owned banks operating in Ghana to achieve consolidated supervision of these banks on a global basis. The bill was subsequently passed as the Banking Act No. 673 of 2004. However, there is little further information publicly available as to Ghana's compliance with this principle.