In a move to reduce credit exposures and ensure stability in the banking industry, the Bank of Ghana has revised it Risk Management Directive for banks and other financial institutions.

This directive is issued pursuant to Section 92(1) of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930) and shall apply to Banks, Savings and Loans Companies, Finance House and Financial Holding Companies (FHC) licensed or registered under Act 930.

The sound risk management standards include the role of the board, risk management framework, risk management strategy as well as risk culture and organizational accountability for risk.

The key objective is to ensure that a regulated financial institution (RFI) has systems in place for identifying, measuring, evaluating, controlling, mitigating and reporting material risks that may affect the ability to meet its obligations to depositors and other stakeholders.  

Also, the Board of an RFI is ultimately responsible for having a risk management framework. The risk management framework must also be consistent with the RFI’s strategic objectives and plan.

The key requirements of this directive are for a regulated financial institution to develop and maintain a risk management framework that is appropriate to the size, business mix and complexity of the institution as well as maintain a Board-approved risk appetite statement.

Also, there is there need to maintain adequate resources to ensure compliance with this directive and also notify BoG when it becomes aware of a significant breach of, or material deviation from, the risk management framework; or that the risk management framework does not adequately address a material risk.

The Central Bank may in the future issue further directives regarding material risk areas it considers necessary or appropriate to ensure prudent management of those risk areas.

Role of Board

The Board of an RFI is ultimately responsible for the RFI’s risk management framework. It shall exercise oversight over Senior Management and in particular, it set the risk appetite, together with the Chief Risk Officer, within which it expects management to operate and also approves the RFI’s Risk Appetite Statement and Risk Management Strategy.

Risk Management Framework

An RFI shall maintain a Risk Management Framework (RMF) that enables it to appropriately develop and implement strategies, policies, procedures and controls to manage different types of material risks, and provides the Board with a comprehensive enterprise-wide view of material risks.

Risk Management Strategy

There shall be a Risk Management Strategy (RMS) approved by the Board.

A core component to the RMS is the board’s articulation of the Risk Universe.

Risk Appetite

An RFI shall maintain an appropriate, clear and concise risk appetite statement which addresses the RFI’s material risks. The risk appetite statement shall at a minimum, convey the degree of risk that the RFI is prepared to accept in pursuit of its strategic objectives and plan, giving consideration to the interests of depositors and other stakeholders.

Risk Culture and Organisational Accountability for Risk

According to the Bank of Ghana, tere shall be a risk culture which effectively communicates and demonstrates accountability for risks by officers, management and all employees engaged in the business established by the RMF and RMS.