Introduction
On November 13, 2024, Ghanaians awoke to alarming news that stirred fresh concerns about the stability of the nation's banking sector. The Bank of Ghana (BoG) had suspended the Foreign Exchange Trading License of Consolidated Bank Ghana (CBG) from November 26 to December 26, 2024, following breaches in forex and anti-money laundering regulations. This decisive action, grounded in section 11(2) of the Foreign Exchange Act, 2006 (Act 723), marks another episode in Ghana's ongoing struggle to maintain a stable and compliant financial ecosystem. As Ghanaians recall the shockwaves of the 2018 banking crisis, which cost the government GH¢21 billion (about $3.8 billion) in this recent move against CBG signals both the BoG's resolve to uphold sector standards and the persistent vulnerabilities within the banking system.
A look back at the 2018 crisis
The 2018 financial sector clean-up was one of the most significant interventions in Ghana's banking history, a sweeping response to years of governance failures, risky practices, and widespread financial mismanagement. Prior to the clean-up, Ghana's financial sector faced mounting problems: numerous banks and specialised institutions were struggling to maintain capital requirements, practices of poor lending standards and excessive risk-taking were common, and several institutions had become insolvent. These challenges, exacerbated by weak regulatory compliance, posed a serious threat to the stability of Ghana's financial system and eroded public confidence.
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In response, the Bank of Ghana (BoG) launched an extensive reform effort aimed at stabilising the sector and rebuilding trust. This initiative involved the closure of nine banks, including prominent names like UniBank, Sovereign Bank, and Beige Bank, which had failed to meet regulatory standards. Nearly 400 specialised deposit-taking institutions, including microfinance institutions, savings and loans companies, and finance houses were also shut down. The process was painful for many depositors and employees, and the Ghanaian government stepped in with a GH¢21 billion ($3.8 billion) bailout to cover customer deposits and prevent a ripple effect that could destabilise the economy.
The financial burden on the state was immense, as the government had to issue bonds to cover the costs of refunding depositors affected by the closures. Beyond the financial cost, the crisis left lasting social and economic impacts: many individuals and businesses who had deposited funds in affected institutions suffered significant financial losses, and thousands of employees lost their jobs as the sector consolidated. The BoG, in response, implemented a range of stricter regulations to restore stability. Key among these was the requirement for all banks to increase their minimum capital reserves to GH¢400 million by the end of 2019, strengthening the resilience of financial institutions against economic shocks and ensuring better management practices.
The BoG also introduced reforms aimed at improving corporate governance and oversight. Institutions were required to adhere to stricter transparency standards and were encouraged to adopt internal mechanisms for risk management and compliance. The establishment of a framework for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) was part of a broader effort to prevent illicit financial activities that could destabilize the sector. Additionally, new guidelines for remittance services and foreign exchange transactions were put in place to maintain oversight on transactions that could pose risks to the financial system.
Despite these reforms, the recent suspension of CBG's forex trading license demonstrates that vulnerabilities remain within the sector. Compliance and governance issues persist, and the risk of regulatory breaches continues to threaten financial stability. CBG's suspension serves as a reminder that achieving a stable and resilient banking sector requires not only reforms but also consistent vigilance from regulators and unwavering commitment to compliance from financial institutions. As the BoG continues its oversight, the 2018 crisis stands as a stark reminder of the consequences of lax governance, underscoring the need for continuous improvement and strict adherence to regulatory standards to ensure the long-term health of Ghana's financial system.
Impact on CBG customers
For CBG's customers, this suspension could have immediate consequences. The forex license suspension disrupts services for individuals and businesses who rely on foreign currency transactions, such as international trade, remittance handling, and tuition payments for overseas education. Ghana's import-driven economy, which recorded over $13 billion in goods and services imports in 2023, is heavily reliant on foreign exchange. With inflation at 40.1 per cent as of October 2023 and a cedi that has weakened significantly, disruptions in forex access could increase operational costs for CBG's clients, from large importers to small businesses. Many customers may shift to other banks for their forex needs, potentially creating congestion and pushing up transaction fees at these institutions.
Effects on the banking sector
The BoG's regulatory stance sends a message across Ghana's banking sector: non-compliance with forex and anti-money laundering guidelines will carry significant penalties. With Ghana's 23 registered banks collectively holding GH¢187 billion in assets as of 2023, the BoG's action underscores the importance of stringent governance. For other banks, the suspension highlights the risks of non-compliance, compelling them to review and fortify their internal control measures. The recent breaches also serve as a stark reminder of the need to uphold standards outlined in the 2023 Guidelines for Inward Remittance Services and the 2022 AML/CFT&P Guideline, both essential in maintaining a transparent financial environment that supports sustainable growth.
Economic implications of regulatory enforcement
CBG's suspension comes at a precarious moment for Ghana's economy. The country's external debt hovers around $60 billion, with a debt-to-GDP ratio exceeding 80 per cent, making the economy highly sensitive to forex market disruptions. The BoG's move could temporarily constrict the availability of foreign currency, affecting the cedi's exchange rate and adding to the challenges faced by an economy already grappling with high inflation. Ghana recently received a $3 billion IMF bailout, contingent on financial reforms that promote stability and growth. As such, the BoG's actions must carefully balance enforcement with economic stability to avoid undermining the broader fiscal objectives set forth by the IMF's support.
Corporate governance: A persistent challenge
CBG's case reveals the continued need for vigilant corporate governance across Ghana's banking sector. Despite regulatory advancements, the breach of compliance underscores the ongoing struggle to maintain high standards in banking operations. The Updated Guidelines for Inward Remittance Services (November 2023) and the AML/CFT&P Guideline (December 2022) are designed to curb risks associated with money laundering and terrorism financing, areas of increasing concern in today's globalised financial landscape. However, adherence to these guidelines remains paramount. For the BoG, CBG's breach reaffirms the importance of constant regulatory monitoring to ensure that the sector aligns with the best practices, both domestically and internationally.
The suspension of Consolidated Bank Ghana's (CBG) forex trading license, despite the extensive 2018 banking sector cleanup, reveals persistent challenges within Ghana's financial system. After 2018, when nine banks and nearly 400 specialized institutions collapsed due to governance failures, the Bank of Ghana (BoG) introduced stringent regulations to restore stability, including raising minimum capital requirements and enforcing new compliance guidelines. However, CBG's breach of forex and anti-money laundering rules highlights gaps in internal oversight and accountability, suggesting that some institutions may have become complacent despite the regulatory environment. For actors responsible for this lapse, the BoG's strict enforcement approach likely means significant penalties, including hefty fines, reputational damage, and potential management restructuring, to deter similar issues in other banks. The BoG is expected to send a strong message by holding those involved accountable, reinforcing that lapses in compliance and governance will not be tolerated in a sector still working to regain public trust.
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Conclusion
As CBG navigates its compliance breach and temporary suspension, Ghana's financial sector finds itself at a crossroads between stringent regulatory enforcement and the need for sectoral stability. This suspension serves as a wake-up call, not only to CBG but to the entire banking industry, emphasizing that adherence to regulatory standards is essential for building public trust and sustaining economic growth. For Ghanaians, who are once again reminded of the financial sector's fragility, the hope is for a more resilient and transparent banking system that can uphold market integrity and foster the country's economic ambitions.
In the wake of CBG's suspension, the BoG's message is clear: Ghana's foreign exchange market, and indeed its entire banking sector, depends on rigorous compliance to protect financial stability. The BoG's actions underscore its commitment to safeguarding Ghana's financial system, even as the road to a stable, resilient sector requires not only reforms but a sustained shift toward ethical practices and strict regulatory adherence. For Ghana, the stakes remain high, and the lessons learned from this episode will undoubtedly shape the future of its financial sector.
