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- 10 Marks
Question
The Central Bank of Ghana (BoG) is mandated to ensure the smooth running of the banking system. Over the years, Bank of Ghana has taken pride in enforcing stricter regulation and supervision. In this regard, the BoG formulated the Banks and Specialised Deposit Taking Institutions Act, Act 930 in 2016, which empowers it to be more aggressive in dealing with deviations in the sector. The BoG, aside instituting regulations, undertook a clean-up of the financial sector. This saw the number of universal banks drop from 30 at the beginning of 2018 to 23, as at the end of December 2018. These 23 universal banks were able to meet the minimum capitalisation requirement of GH¢ 400 million by the end of December 2018 (BoG, MPC reports, 2018).
Major corporate failures worldwide have dented investor confidence as well as raised several questions on the effectiveness of a firm’s internal control system and the corporate governance structures and also poor risk management especially for banks. Bank of Ghana in addressing collapse of Rural Banks and the risk management gap of the rural banking space introduced the Risk Management Guidelines for Rural and Community Banks in May 2021.
Required:
Evaluate FIVE (5) of the responsibilities of the Board for risk management of rural banks.
(10 marks)
Answer
Responsibilities of the board for risk management of rural banks.
- The board of the RCB oversees the operations of the RCB and is an important check on management’s performance including risk management. The Board’s responsibility for risk management emanates from provisions in various laws and regulations. Section 56 (d) of the Banks and Specialised Deposit-taking Institutions Act, 2019 (Act 930) 2 example enjoins Bank of Ghana to ensure prudent operation including matters relating to risk management. The RCB Board has to ensure compliance with the provision of this section.
- The Board shall be responsible for ensuring the establishment and operation of an effective risk management system in line with the provisions of this Act. The Board shall also have responsibility for the level of risk assumed by the RCB Board. To carry out the responsibilities effectively, RCB Boards need to be fully aware of risk management methodologies. This shall be further strengthened through participation in training in Rural Bank risk management within twelve months of appointment.
- The Board shall ensure Key management Personnel and other staff responsible for managing RCB risk go through training in risk management and have appropriate expertise for the risk management functions.
- The Board shall ensure the RCB adopts and implement sound methodologies for the identification, measurement and monitoring of risks.
- In ensuring that RCB adopts sound methodologies for risk management, the Board shall have responsibility for approving all policies for the RCB including all risk management policies, procedures and strategies; ensure availability of required resources, compliance with approved risk management policies, procedures and strategies; continually assess the relevance of the policies, procedures and strategies in line with existing and emerging risk and hold management accountable.
(5 points @ 2 marks each = 10 marks)
- Tags: Board Responsibilities, ICAG, Risk Management, Rural Banks
- Level: Level 3
- Uploader: Dotse