The Bank of Ghana has issued a Risk Management guidelines for Rural & Community Banks to ensure among other things a well-structured approach to risk management that meets the minimum standards of RCBs as well as protect them from losses.
The guidelines set out the minimum standard provisions on policies and procedures that would have to be covered in the various policies and procedures manuals used by the RCBs.
According to the Central Bank, the guidelines will also provide RCBs with the needed guidance to protect their institutions from losses; protect and attract capital; instill confidence in the regulator and other stakeholders through the adoption of measures that promote stability in Rural Banks and the wider financial sector.
Further expectations of the risk management guidelines are that, the provisions will contribute to the creation of a culture of risk awareness in the RCBs, strengthen methodologies for risk identification, risk measurement, risk mitigation, risk monitoring and reporting.
RCBs would then be expected to use the guidelines for the formulation of RCB specific risk management systems that will meet their unique needs.
With respect to use of the guidelines, RCBs may be required during the Bank of Ghana On-site examination to show their manuals on risk management and evidence of its application.
The adequacy or otherwise of an RCB’s risk management system shall also be reviewed by the Bank of Ghana during its examinations.
The ARB Apex Bank and the Association of Rural Banks may also use the adoption of risk management practices through well documented guidelines as part of conditions for remaining a member in good standing.
Board Responsibility for Risk Management
According to the Bank of Ghana, the Board of the RCB oversees the operations of the RCB and is an important check on management’s performance including risk management.
The Board’s responsibility for risk management emanates from provisions in various laws and regulations.
Section 56 (d) of the Banks and Specialised Deposit-taking Institutions Act, 2019 (Act 930) for example enjoins Bank of Ghana to ensure prudent operation including matters relating to risk management. The RCB Board has to ensure compliance with the provisions of this section.
Management and Staff Responsibility for Risk Management
The Key Management Personnel team of the RCB shall have responsibility for designing the system for risk management, development of policies, procedures and strategies for Board approval; and assign responsibilities for the implementation of various components of the risk management system, policies, procedures and strategies.
Key Management Personnel shall further ensure that RCB employs individuals with the appropriate competencies for their roles and are given continuous and relevant training to perform their assigned duties; ensure individuals are assigned clear duties and the magnitude of risk in the duties is adequately addressed and maintain open communication that allows managers and staff to identify and report emerging risks.