BoG will hold DBG to same regulatory, supervisory standards it holds banks – Governor Addison says
Governor of the Bank of Ghana (BoG), Dr Ernest Addison, has said the apex bank will hold the newly launched Development Bank Ghana (DBG), to the same regulatory and supervisory standards it holds commercial banks operating in the country.
According to the Governor, this is because, a strong regulatory and supervisory regime is needed to underpin the operations of the DBG.
Delivering his address at the launch of the DBG, the Governor noted inadequate regulation and supervisory framework and undue political interference were major contributory factors that led to the collapse of development banks in Africa during the 1960s to 1980s.
The Governor expressed the view that, implementation of strong regulatory and supervisory standards for the DBG will help it operate more efficiently to achieve its economic transformation mandate.
“The Development Finance Institutions Act, 2020 (Act 1032). Act 1032 contains provisions on sound and prudent banking principles to guide effective operations of Development Finance Institutions, such as capital and reserve requirements, liquidity requirements, ownership and control, corporate governance, restrictions on lending and investments, and financial reporting, amongst others, to ensure they are operationally efficient.
“Provisions on corporate governance structures have been strengthened under the Act. As a result, the Ownership, Governance and Operational Structures of DBG have been carefully designed to ensure that DBG is managed professionally to successfully carry out its economic transformational mandate. As the regulator, the Bank will deploy the requisite tools to ensure effective regulation and supervision of DFIs. Starting with the DBG, the Bank will also ensure that DFIs in Ghana operate in a financially sustainable manner, to achieve the development mandate, foster confidence, and attract more investments into the economy to support growth,” he stated.
“On this very issue, I wish to reiterate that the Bank of Ghana will hold the DBG to the same regulatory and supervisory standards that it holds banks and SDIs, while at the same time maintaining oversight of the Participating Financial Institutions (PFIs) that DBG will be working with,” he added.
Speaking further at the event, Dr Ernest Addison averred the creation of the DBG is evident of the resurgence in the establishment of new development finance institutions (DFIs) in developing economies.
According to him, the resurgence of new DFIs is largely due to the fact that existing DFIs have been unable to effectively address credit market gaps and facilitate meaningful increase in financial intermediation in terms of outreach and scale.
In his view, the failure of existing DFIs to effectively address credit market gaps, has necessitated the establishment of modern market-oriented DFIs which will provide medium to long term financing support to businesses.
Experiences from countries show that DFIs can play key developmental roles when well-structured, insulated from political interferences in operational decisions, and professionally managed along sound principles that balance development objectives with market realities.
In view of that, the BoG says it expects the DBG, together with the other DFIs that will be licensed by the Bank, would help address market failures in the Ghanaian credit markets, thereby helping businesses invest long-term, and promote economic growth and job creation.
Despite the supporting role of banks and Specialized Deposit-taking Institutions (SDIs), there are shortcomings on the financial landscape which has a direct bearing on growth.
Banks and SDIs focus on short-term financing for commercial purposes with little support for long term financing needed to accelerate economic development and transformation.
Available data show that, less than 15 percent of loans granted by banks are for 5 years or longer, making investment in long gestation projects, especially for Small Medium sized Enterprises (SMEs) unviable.
Also, the share of bank credit to the agriculture and manufacturing sectors hover around 4 percent and 8 percent, respectively. This data shows that only a small share of lending goes to key sectors such as agriculture and manufacturing relative to their shares in GDP and employment.
This therefore, necessitates the establishment of the DBG which will focus on providing medium to long term financing to businesses in key sectors of the economy.
