- Capital Alone Will Not Save Ghana’s Banks: Dr Atuahene Warns Governance Must Anchor BoG Reforms
Ghana can legitimately demand more capital from its banks and specialised deposit-taking institutions as the financial system grows, but higher capital requirements will provide only an expensive illusion of safety if the Bank of Ghana does not simultaneously enforce corporate governance rules with considerably greater intensity, according to banking and finance expert Dr Richmond Akwasi Atuahene.
That distinction sits at the centre of a renewed debate over the future architecture of Ghana’s financial sector as regulators contemplate stronger capital, restructuring and compliance requirements for institutions operating below the universal banking tier.
For Atuahene, the lesson from Ghana’s previous banking and financial-sector crisis is uncomfortable but difficult to avoid: several institutions did not collapse merely because they were short of capital. Capital erosion was often the final financial expression of deeper failures involving weak boards, insider lending, poor credit decisions, ineffective risk management, related-party transactions, regulatory breaches and, crucially, supervisory shortcomings that allowed those problems to persist.
In an opinion paper titled Corporate governance deficits and persistent regulatory breaches: A Case for Bank of Ghana Reforms in the SDI sector, Atuahene argues that Ghana’s specialised deposit-taking institutions have repeatedly been weakened by a combination of regulatory lapses, ineffective governance, poor ethics and inadequate institutional controls. He places corporate governance rather than capital alone at the centre of any credible attempt to prevent a repeat of past financial-sector distress.
The argument is particularly relevant because capital is the most visible and politically straightforward instrument available to a regulator. Raising minimum capital can force weak shareholders to inject fresh money, encourage mergers, create larger institutions and provide additional buffers against unexpected losses.
But capital cannot supervise itself. A bank can satisfy a new minimum capital threshold on Monday and begin destroying that capital on Tuesday if directors approve reckless lending, owners treat deposits as extensions of their personal balance sheets, executives override risk controls or supervisors fail to intervene when prudential breaches emerge.
That is the difference between capital adequacy and institutional soundness. Atuahene’s paper identifies weak board oversight, excessive insider lending, ineffective risk management and regulatory compliance gaps among the central governance failures that contributed to distress across Ghana’s specialised deposit-taking industry. Those weaknesses, he argues, fed directly into capital erosion, high non-performing loans and insolvency.
The implications should shape the debate over any new minimum capital requirement. Capital matters because deposit-taking institutions must have sufficient loss-absorbing capacity. A larger equity base protects depositors, gives an institution room to withstand shocks and signals that shareholders have meaningful resources at risk.
What capital does not do is determine whether those resources are prudently managed. That requires boards capable of challenging management, independent risk and internal-control functions, accurate financial reporting, restrictions on related-party transactions, fit-and-proper owners and executives, and a regulator prepared to enforce the rules before weaknesses become insolvency.
The international architecture of banking supervision makes essentially the same point. The Basel Committee on Banking Supervision describes its Core Principles as the minimum global standard for sound prudential regulation and supervision. The framework extends far beyond capital and places governance, risk management, supervisory powers, early intervention and timely remedial action at the heart of financial stability.
Its corporate governance principles place ultimate responsibility for a bank’s strategy, financial soundness, risk management, internal organisation and compliance on the board. Supervisors, in turn, are expected to evaluate governance, interact regularly with boards and senior management and require remedial action where deficiencies arise.
Successful banking systems do not choose between capital and governance. They require both. Minimum capital is a quantitative defence. Corporate governance is behavioural and institutional defence. Supervision is the mechanism that ensures neither becomes optional.
Atuahene’s concern is that Ghana has already seen what happens when that second and third layer fail.
His assessment of the specialised deposit-taking sector points to cases where shareholders and managers allegedly extended large unsecured loans to themselves or affiliated entities without normal credit procedures, sometimes breaching single-obligor limits. Such related-party lending is particularly dangerous because it undermines one of banking’s fundamental safeguards: the separation between depositors’ money and owners’ commercial interests.
A financial institution can appear well capitalised shortly before such behaviour becomes visible in its accounts.
Suppose shareholders inject GH¢500 million into a lender to satisfy a regulatory requirement. If a dominant owner can subsequently direct a large portion of that money into connected companies without independent credit assessment, adequate collateral or credible repayment capacity, the higher capital requirement has not solved the governance problem.
It has simply increased the amount of capital available to be misallocated. The same applies to weak boards.
Atuahene describes passive directors, inadequate risk-management oversight and failures to challenge executive management as recurring deficiencies in the SDI sector. He also highlights the danger of excessive concentration of authority, including situations where chief executive and board leadership roles become insufficiently separated, weakening independent oversight.
These are not procedural niceties. Banks are unusual companies because their principal raw material is other people’s money.
Shareholders provide only part of the funding. Depositors and other creditors supply much of the rest. That creates a powerful public interest in ensuring owners and managers cannot use control over a licensed institution to take risks whose upside accrues privately while losses eventually fall on depositors, taxpayers or the wider financial system.
Governance is therefore not simply about improving boardroom etiquette. It is part of the prudential architecture.
The Basel framework similarly emphasises strong boards, independent risk-management functions, internal audit, compliance and a risk culture capable of constraining excessive risk taking. The logic is that a regulator cannot sit inside every credit committee or inspect every transaction in real time. The first line of defence must exist within the institution itself.
Ghana’s previous banking crisis demonstrated how costly the failure of that architecture can become.
Atuahene’s paper recalls the collapse of nine universal banks and more than 400 smaller financial institutions during the restructuring period, alongside job losses, frozen funds and a loss of confidence among depositors. He argues that public criticism subsequently focused not only on the conduct of failed institutions but also on how vulnerabilities had been allowed to accumulate for years before decisive intervention arrived.
This is why the central bank’s role must sit at the heart of the next reform. It is insufficient for the BoG to issue a corporate governance directive, circulate prudential rules and assume that compliance will follow.
Rules matter only to the extent that regulated institutions expect them to be enforced.
- If a board repeatedly ignores regulatory findings without consequences, the rule is weakened.
- If connected lending exceeds permitted limits and enforcement is delayed, the limit becomes negotiable.
- If an institution fails to implement recommendations from an on-site examination and retains its licence without meaningful sanctions, supervisors unintentionally create an incentive for other firms to treat supervisory directives as advisory.
Atuahene specifically identifies persistent breaches of prudential requirements and failures to implement on-site examination recommendations as part of the sector’s problem. He argues that oversight gaps, delayed enforcement and structural loopholes allowed risky practices to spread before intervention.
This may be the most consequential point in his analysis. Bank failures rarely occur on the day regulators discover that capital is negative. They usually develop through a sequence.
A board approves weak loans. Connected exposures increase. Liquidity begins to tighten. Management attempts to conceal deterioration. Non-performing loans rise. Deposits may then be used to fund increasingly risky attempts to recover lost income. Financial reporting becomes less reliable. Regulatory ratios are breached. Eventually capital is exhausted.
The critical supervisory question is not whether the regulator can close the institution at the end of that chain.
The Basel Committee’s updated Core Principles explicitly stress forward-looking, risk-based supervision, early intervention and timely corrective action. That reflects decades of international experience showing that late intervention dramatically increases the cost of bank resolution.
For Ghana, this suggests that the success of another recapitalisation exercise should not be measured simply by how many institutions meet the prescribed capital number by a deadline.
A more meaningful test would ask whether ownership structures are transparent; whether boards have genuine independence and banking expertise; whether risk committees can challenge controlling shareholders; whether internal auditors can report without intimidation; whether related-party exposures are comprehensively disclosed; whether supervisory findings are closed promptly; and whether sanctions are applied consistently regardless of ownership or political influence.
Those questions are less visible than headline capital figures, but they determine whether capital survives.
The weakness of non-performing loans illustrates the connection. Atuahene argues that high NPLs played a substantial role in the distress experienced by Ghana’s specialised deposit-taking institutions.
Poor loan origination, credit-risk weaknesses and mismatches between loan maturities and the projects being financed contributed to the deterioration in asset quality. As NPLs increased, earnings weakened and capital was progressively eroded.
Again, the lesson is not that capital is irrelevant. It is that raising capital without repairing credit governance can create a temporary buffer against a permanently defective lending process. If an institution consistently makes poor loans, twice the capital merely allows it to survive poor decisions for longer.
That is why sound jurisdictions treat capital, governance and supervision as complementary rather than interchangeable.
The regulator sets minimum buffers. Boards establish strategy and risk appetite. Management operates within those limits. Independent risk and audit functions test compliance. Supervisors challenge all of them. Where weaknesses emerge, corrective action begins before depositor funds are endangered.
The alternative is regulation by crisis. Ghana has already experienced the fiscal and social costs of that model.
Atuahene also raises a structural question about whether the Bank of Ghana’s existing supervisory architecture is sufficiently equipped for the breadth and geographic dispersion of the SDI industry.
Ghana’s non-bank deposit-taking landscape includes savings and loans companies, rural and community banks, finance houses, microfinance institutions and other providers serving populations that may not be reached effectively by universal banks. The paper notes that such institutions have historically performed an important financial-inclusion role, particularly for lower-income and underserved customers.
That makes regulatory failure especially damaging. When a large commercial bank experiences difficulty, sophisticated corporate customers may have treasury departments, lawyers and alternative banking relationships.
A market trader, farmer, pensioner or small entrepreneur placing savings in a community-based institution often has considerably less capacity to assess its financial condition.
The licence itself becomes a signal of trust. That means regulators carry an even greater responsibility where vulnerable depositors interpret Bank of Ghana authorisation as evidence that an institution is being actively supervised.
Atuahene consequently proposes either separating the regulatory architecture for banks and non-bank financial institutions or establishing a specialised supervisory institution or dedicated unit focused specifically on microfinance and related entities.
Whether Ghana ultimately adopts a separate regulator or strengthens the existing BoG structure is a policy choice requiring careful consideration.
But the underlying issue is compelling: regulatory capacity must match the complexity of the industry being regulated.
A supervisor with hundreds of geographically dispersed institutions cannot depend exclusively on periodic manual inspections.
Atuahene therefore recommends greater use of digital regulatory reporting to monitor liquidity, asset quality and compliance across rural and urban networks, alongside better-trained, better-resourced supervisory personnel and proportionate regulation calibrated to different institutional risk profiles.
This could be one of the most practical reforms available. Modern supervision increasingly depends on data. If the central bank receives timely and reliable information on liquidity, NPLs, large exposures, related-party lending and capital adequacy, automated systems can flag unusual movements long before an institution reaches insolvency.
But technology cannot substitute for enforcement either.
- A dashboard can show a breach.
- Only the regulator can decide whether it matters.
- And only credible supervisory authority can compel an institution to remedy it.
- The risk in Ghana is therefore not an absence of rules.
- It is enforcement inconsistency.
Atuahene puts the point plainly in his recommendations: “regulation without good governance provides numerous avenues” for regulatory breaches. He argues for independent and suitably skilled board members, proper induction, regular evaluation and governance structures designed around the actual functions and risks of specialised financial institutions.
That should become the central principle of the coming reform. The Bank of Ghana can increase capital requirements. Indeed, there may be strong reasons to do so.
Inflation, asset growth, technological requirements, cyber risk, expanding loan books and the increasing complexity of financial markets can make historical minimum capital levels economically obsolete. Institutions need enough capital to absorb losses and finance the systems required of modern deposit takers.
But a capital increase should be the beginning of the reform, not its definition. The real question is what happens after shareholders write the cheque.
- Will directors be sufficiently independent to protect the institution rather than the dominant owner?
- Will chief executives be prevented from overruling risk officers?
- Will connected-party lending be identified before it becomes a threat to solvency?
- Will fit-and-proper tests remain continuing obligations rather than once-off licensing exercises?
- Will auditors and compliance officers be able to alert the regulator without fearing retaliation?
- And will the Bank of Ghana move early when evidence indicates that a board or controlling shareholder is endangering depositors?
Those are the issues that determine financial stability. There is also a danger in treating consolidation as an automatic cure.
Higher capital thresholds may lead smaller institutions to merge, bring in investors or surrender licences. Some consolidation could produce stronger firms with better technology, broader geographic reach and more diversified portfolios.
But combining weak governance with larger balance sheets can simply create larger weak institutions.
Size is not synonymous with soundness. A poorly governed institution with GH¢5 billion in assets may pose a greater systemic risk than a poorly governed institution with GH¢500 million. The regulator must therefore scrutinise not only whether mergers create adequate capital but whether ownership structures, board composition, management competence and internal controls improve as a result.
The issue of “mission drift” identified by Atuahene adds another layer.
Specialised deposit-taking institutions were intended partly to advance financial inclusion by serving lower-income, unbanked and underserved customers. The paper argues that some institutions gradually shifted towards larger transactions and wealthier customers, including riskier “big-ticket” investments that departed from their original business models.
That can become a prudential problem when an institution designed around small, diversified loans begins assuming concentrated exposures for which its governance systems lack the expertise to manage.
Capital requirements should therefore be proportionate to business models, but supervisors must also police changes in those business models.
A microfinance institution should not be permitted to evolve quietly into a high-risk investment vehicle while continuing to mobilise deposits under a regulatory framework designed for something fundamentally different.
Deposit protection is equally important. Atuahene calls for stronger enforcement of deposit-protection arrangements across smaller institutions and faster action against unlicensed operators that mobilise public deposits below the regulatory radar.
But deposit insurance also depends on good supervision. An insurance scheme cannot become a substitute for market discipline or a guarantee that badly governed institutions may operate indefinitely because depositors will eventually be compensated.
The strongest deposit-protection system is one that rarely has to be used because supervision intervenes before losses overwhelm institutions.
That returns the debate to governance. The history of banking crises internationally is filled with institutions that appeared adequately capitalised before losses suddenly became visible.
Capital ratios are inherently backward-looking to some degree. They are calculated from balance-sheet values, asset classifications and risk weights that depend partly on the accuracy and integrity of management reporting.
- If governance is weak, those numbers can provide false comfort.
- An undisclosed connected loan may appear as an ordinary performing asset.
- A poorly classified exposure can flatter asset quality.
- Overvalued collateral can disguise potential losses.
- Evergreening can prevent a bad loan from appearing non-performing.
Weak governance therefore does not merely consume capital. It can conceal the extent to which capital has already been consumed.
That is why the Basel governance framework stresses independent risk functions, effective internal audit and direct board responsibility for financial soundness.
Ghana’s challenge is to make those principles operational rather than ceremonial.
The country is now in a stronger position to learn from the previous clean-up before another crisis forces the lesson again.
Atuahene suggests the authorities may need some flexibility around transition deadlines for portions of the SDI sector rather than forcing institutions through a process that could unnecessarily damage confidence. His paper points to the December 2027 horizon as a possible restructuring endpoint while stressing that the objective should be orderly compliance rather than a repeat of the disruption associated with the previous banking clean-up.
Any extension, however, should not become regulatory forbearance. More time to raise capital can be defensible. More time to continue insider abuse, ignore supervisory findings, conceal related-party lending or operate with ineffective boards is not.
This distinction should guide the central bank. Capital deficiencies can sometimes be repaired over an agreed transition period. Governance breaches that threaten depositor funds require immediate action.
That means Ghana’s next phase of financial-sector reform should be built around a simple hierarchy: raise capital where necessary, strengthen supervision everywhere and compromise on governance nowhere.
The Bank of Ghana’s credibility will ultimately be determined less by the number it chooses as the new minimum capital requirement than by what happens when an institution breaches rules after meeting that number.
If sanctions are predictable, boards are accountable, connected lending is restricted, supervisory recommendations carry force and early-warning signals trigger intervention, higher capital can add genuine resilience.
If enforcement is uneven, owners can dominate boards, risk functions lack independence and breaches are tolerated until insolvency becomes unavoidable, Ghana risks rebuilding precisely the vulnerabilities it spent enormous resources removing during the last crisis.
Atuahene’s paper therefore presents the coming reform as something much larger than a recapitalisation exercise. It is a test of whether Ghana has absorbed the institutional lesson of its financial-sector clean-up.
Capital protects a bank from losses. Governance determines how many of those losses are created in the first place. Supervision determines whether dangerous behaviour is stopped before depositors and taxpayers are required to pay for it.
A sound banking system needs all three. For Ghana, however, the most urgent lesson from its recent history may be that capital can be replenished. Confidence, once destroyed by weak governance and delayed regulation, is much harder to rebuild.
That is why the Bank of Ghana should be prepared to raise the capital bar if economic conditions justify it. But the more consequential reform will be proving that no shareholder, director, executive or institution is too influential to be subjected to the same corporate governance standards.
The next banking crisis will not be prevented merely by demanding that institutions hold more money. It will be prevented by ensuring that those entrusted with that money cannot misuse it and by having a regulator willing to act decisively when they try.
