Banking Industry: BoG commence implementation of BMVA Framework to enhance supervisory practices

In a bid to bolster its supervisory capabilities and fortify the stability of its banking sector, the Bank of Ghana has commenced the development of a robust Business Model and Viability Analysis (BMVA) Framework.

This strategic move aims to empower regulatory authorities in promptly identifying potential vulnerabilities within banks and ensuring the overall safety and soundness of the financial landscape.

During a noteworthy address at the 40th Annual General Meeting of the Ghana Association of Banks, the distinguished Governor of the Bank of Ghana, Dr. Ernest Addison, emphasized the institution’s unwavering commitment to scrutinizing the ramifications of banking institutions’ strategic decisions.

This scrutiny is underscored by an acute awareness of the adverse impact stemming from the Domestic Debt Exchange Programme.

To this end, the central bank has tactically integrated a limited Asset Quality Review into its supervisory agenda for the year 2023.

This specialized evaluation is aimed at gauging the health of banks’ loan and investment portfolios, ensuring their alignment with the Bank of Ghana’s classification standards and adhering to International Financial Reporting Standards. Furthermore, building upon the foundation laid by the implementation of Pillar 1 of Basel II/III in 2018, the Bank of Ghana is gearing up for an extensive regulatory reform agenda. This involves a comprehensive dialogue with the Ghana Association of Banks regarding the deployment of Pillar 2 of the Basel II/III capital framework.

The framework’s overarching objective is to ensure that financial institutions maintain adequate capital buffers to mitigate material risks inherent in their operations.

The regulatory guidelines for Pillar 2 encompass various critical aspects, including Liquidity Risk Management, Internal Capital Adequacy Assessment Process (ICAAP), Guide to Supervisory Intervention, and Concentration Risk Interest Rate Risk in the Banking Book.

In preparation for the seamless implementation of Pillar 2, the Bank of Ghana laid the groundwork by issuing the Risk Management Directive in November 2021.

This directive mandates banks to establish robust systems for identifying, measuring, evaluating, controlling, mitigating, and reporting material risks. This proactive measure aims to safeguard depositors and other stakeholders and bolster banks’ ability to meet their financial obligations.

The Bank of Ghana’s vigilant oversight appears to have yielded notable results, as indicated by the impressive financial performance of Ghanaian banks.

Dr. Addison disclosed that, buoyed by portfolio shifts and exchange rate revaluation effects, the industry saw a remarkable 41.4% surge in profit-before-tax in August 2023, compared to a 26.5% growth recorded during the same period the previous year. Similarly, the industry’s net income, or profit-after-tax, surged to GH¢13.5 billion in August 2023, reflecting a substantial 37.9% increase.

The industry’s return-on-assets also witnessed an uptick, rising from 4.7% to 5.4%, while return-on-equity soared from 23% to an impressive 36.9%.

These promising indicators underscore the resilience and stability of the Ghanaian banking sector, setting a positive tone for its future prospects.

Source: norvanreports