BoG to incorporate Business Model Analysis to enhance supervision

The Governor of the Bank of Ghana (BoG), Dr. Ernest Addison, has called on commercial banks to address the underlying vulnerabilities that threaten the overall stability of the banking sector.

According to him, these challenges are largely structural and require a comprehensive approach.

Speaking at the 28th National Banking and Ethics Conference, on Thursday, November 21, organized by the Chartered Institute of Bankers, Ghana, Dr. Addison revealed that the Central Bank is integrating business model analysis into its regulatory framework.

This strategy is aimed at identifying and addressing potential risks that could undermine the sector’s soundness and long-term sustainability.

The Governor also underscored the importance of responsible banking practices grounded in strong ethical standards, urging the industry to prioritize integrity and accountability in all operations.

Weaknesses leading to the collapse of banks are not overnight. Unviable and unsustainable business models and strategies are often the root causes of banks’ vulnerabilities and failures. While sudden external shocks such as COVID-19 or the global financial crisis could be greatly impactful and cause the immediate demise of some banks, the root causes are generally more structural. If not identified in time and allowed to fester, these vulnerabilities will make a bank’s activities increasingly unsustainable, to the point where it become non-viable.

“Going forward, the Bank is incorporating Business Model Analysis (BMA) as a key component of its supervisory frameworks to enable supervisors to identify banks’ vulnerabilities at an early stage and help to ensure their safety and soundness.

“We have recently issued an exposure draft of our methodology for assessing the viability of banks’ business model to the industry, which we will soon finalise for adoption. Business model analysis has the potential to enhance bank supervision and make it more effective, proactive and forward-looking, and would be our next examination thematic review next year.”

For his part, the President of the Chartered Institute of Bankers, Ghana, Benjamin Amenumey, also called for enhanced internal controls in response to the rising levels of fraud within the sector.

Another pressing issue is the rise in financial fraud as highlighted in the 2023 Fraud Report by the Bank of Ghana. This underscores the need for robust internal controls and ethical training,” he said.