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‘More stringent and effective’: Ernest Addison, Governor of Bank of Ghana
The governor of Bank of Ghana says becoming more stringent and effective is the way to go
The Africa Report: Why is it so important to raise the capital base? I have seen quite vivid arguments with Bright Simons and people at think tanks saying we do not need to do this now.
Because they do not understand the risks that are facing the banking system. They are looking at countries like Canada and other places with lower capital requirements. They are not the comparisons we want to make. The risks in Canada are very different from the risks in Ghana. Even the macroeconomic risks that Canada faces are different from those that we face. When we looked at the issue we looked at the macroeconomics of the problem. The fact that you set a minimum capital requirement and over time this is eroded by high inflation and exchange-rate depreciation. So that is a factor in trying to set a new requirement. You want to set a rate that will be enduring in that sense. You also have to look at the type of projects that the banks are financing […]. There is a reason why you have those prudential limits, in terms of the exposures at the banks, the ceilings that we set for the banks […]. It all has to do with the risks associated with banking and the level of the capital of banks.
You want to set a rate that will be enduring
What have you learned from Nigeria’s big bang of 2005?
The story that I heard from Nigeria was that the banks had so much capital that they did not know what to do with it. This was the argument. And we are saying in Ghana, we have a lot of projects, a lot of initiatives – all of the One District, One Factory concepts that the government is thinking up. All of these would require financing. So the financing need in Ghana is significant. And there is room for the banks to participate in that market.
How tough are you as a regulator?
I think our work speaks for itself in terms of all the things we have tried to do for the past one year. We are becoming more stringent and effective in the supervisory work we are doing. And we plan to keep it that way.