The Governor of the Bank of Ghana (BoG), Dr Johnson Asiama, has identified several causes of insolvency in banks and specialised deposit-taking Institutions (SDIs).
The causes include Creative accounting practices that misrepresent financial conditions; Cash and asset suppression; Insider dealings/related-party transactions exceeding statutory limits; Weak board oversight and internal control override; Non-compliance with BoG provisioning norms and failure to implement on-site recommendations; Non-existent paid-up capital or investments in SEC-regulated institutions; Inadequate capital to sustain operations; High management fees paid to related parties; Excessive risk-taking without proper risk management; Poor investment decisions and lack of due diligence; Misuse of depositors’ funds for long-term expenditures, causing asset-liability mismatches; Poor credit underwriting standards leading to toxic assets (e.g., non-performing loans, unrecoverable placements, etc.), and; Use of depositors’ funds to finance related-party projects.
Dr Asiama said this when he delivered the keynote address during the Office of the Registrar of Companies sensitisation programme for selected judges of the judiciary at Peduase, Aburi, in the Eastern Region on Friday, October 10.
He told the gathering that the importance of the Corporate Insolvency and Restructuring Act (CIRA), 2020 (Act 1015), particularly at a time like this, cannot be overemphasised. The passage of Act 1015 marked a transformative development, introducing a modern framework for aiding financially distressed companies.
The Act, he said, outlines clear conditions for placing companies into administration and defines the key responsibilities of administrators, who work to stabilise companies, and restructuring officers, who develop recovery strategies.
Act 1015 therefore offers significant potential in addressing insolvency situations through effective debt workouts and other restructuring modes. It is a crucial piece of legislation addressing corporate insolvency and restructuring in Ghana.
“We believe that a resilient and robust corporate insolvency regime plays a critical role in strengthening Ghana’s corporate regulatory framework, which is an area in which the Bank of Ghana plays a vital role,” Dr Asiama said.
He further indicated that a strong regulatory framework ensures compliance, protects the public interest, and promotes fair practices across sectors, safeguarding not just financial institutions but the broader economy as well.
Highlighting the Bank of Ghana’s statutory mandate, he said they have the duty to Maintain price stability, Promote economic growth, Ensure the efficient operation of the banking and credit system, and Promote financial stability.
In line with this mandate, he said, the Bank recognises the value of a well-designed insolvency regime.
In addition to Act 1015, the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930), which serves as the primary legislation governing Ghana’s banking sector, provides for: Prudential requirements, Enforcement mechanisms, and Early intervention through prompt corrective actions for distressed banks and Specialised Deposit-taking Institutions.
“The Bank of Ghana takes insolvency seriously and works diligently, through its regulatory and supervisory roles, to prevent Regulated Financial Institutions (RFIs) and Specialised Deposit-taking Institutions from becoming insolvent.
“Insolvency is defined as the inability of a bank or SDI to meet its obligations as they fall due, or a situation where its liabilities exceed its assets. It goes beyond temporary illiquidity, indicating severe balance sheet mismatches and an inability to recover within a reasonable time.”
