Ghanaian Banking Crisis of 2017-2019 and Related Party Transactions

Abstract

Early in 2017, a new management team took over the helm of affairs at the central bank of Ghana. Preliminary evidence available to them suggested that a number of banks were distressed. Further investigation by them revealed that poor corporate governance, false financial reporting, and insider dealings were major contributory factors to the poor state of affairs that they found. The central bank then engaged the banks in question to try to rectify the situation. Unfortunately, things did not work out. Subsequently, over the course of sixteen-months, the banking licenses of nine banks out of 35 were withdrawn. This paper focuses on the role insider and related party transactions (RPTs) played in what has been referred to as Ghana's banking crisis and presents details of the extent to which affected banks engaged in RPTs, possibly in a quest to seek rents. Content analysis of the central banks allegations against affected banks suggests that being members of conglomerate groups pre-disposed banks to rentseeking related party transactions. To forestall such activities, it is recommended that banks should not be allowed to belong to conglomerate groups. Also, entities with controlling interests in non-regulated firms should not be allowed to gain controlling interests in banks. Further, the central bank should be extra vigilant in carrying out its risk-based supervisory responsibilities. Finally, Ghana should consider adopting the twin peaks approach to regulating her financial system.