Question Tag: Rural Banks

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  • 10 Marks

AAA – Aug 2022 – L3 – Q5a – Current issues

State eight requirements of the corporate governance directives aimed at improving corporate governance in the rural banking sector.

To address the protracted gaps and promote robust corporate governance practices in the rural banking sector, the Bank of Ghana issued Corporate Governance Directives for Rural and Community Banks in May 2021.

Required:
State EIGHT (8) of the requirements of the corporate governance directives aimed at improving Corporate Governance in the rural banking sector.

Below are selected provisions from the directive:

  • Disclosure of Interest by Directors:
    A person, before assuming office as a Director or Key Management Person of a Rural and Community Bank (RCB), shall declare to the Board of that RCB and the Bank of Ghana the professional interests and any material change in business interest to prevent a conflict of interest with their duties as a Director or Key Management Person.
  • Intervention of the Bank of Ghana in Appointments:
    A proposed Director elected at the Annual General Meeting (AGM) or appointed at a Board Meeting of an RCB shall not take up the office of Director on the Board unless given prior written approval by the Bank of Ghana after determining the fitness and propriety of the proposed Director.
  • Board Charter:
    The Board shall operate under a Board Charter which outlines the appropriate governance practices, including overall Board responsibility, code of ethics for Directors, and the structure and reporting lines of Board Committees.
  • Succession Plan:
    The RCB shall implement a succession plan to ensure an effective and orderly succession of Directors and Key Management Personnel.
  • Separation of Powers:
    There shall be clear lines of accountability at the top hierarchy of an RCB. The positions of the Board Chairperson and the Chief Executive Officer (CEO) shall be distinct and separate from each other.
  • Board Qualifications and Composition:
    Directors shall possess, individually and collectively, appropriate experiences, competencies, and personal qualities, including professionalism and integrity. Competencies shall cover areas such as Banking, Audit, Law, Finance, and more.
  • Board Induction:
    An RCB shall establish a formal induction program for newly appointed Directors to enable them to effectively discharge their duties and responsibilities.
  • Tenure of Office of Directors and CEO:
    A Director shall hold office for a term of three (3) years and shall not hold office for more than three (3) terms. The CEO shall hold office for a term of four (4) years and shall not hold office for more than three (3) terms.
  • 10 Marks

AAA – March 2023 – L3 – Q5a – Current issues, Government external audit and public accountability

Evaluate five responsibilities of the Board for risk management of rural banks.

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)

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)

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