Question

The recent collapse of some banks and financial institutions and the merger of others in ghana is proof that the financial system which consists of institutional units and markets that interact, typically in a complex manner, for the purpose of mobilizing funds for investment and providing facilities, including payment systems, for the financing of commercial activity remains unprotected in spite of the the presence of the Regulator and a solid legal system backing it. From the discussion in class and available literature, examine some of the difficulties associated with the financial system and how these challenges have been addressed by the Banks and Specialised Deposit Taking Institutions Act 2016 (Act 930). Are there any novel ways by which some of the challenges may be resolved in your opinion?

Answer 1

Difficulties associated with financial systems could be explained by dangers of bank megers

Poor Culture Fit

Plenty of prospective bank mergers and acquisitions only look at the two banks on paper – without taking their people or culture into account. Failure to assess cultural fit (not just financial fit) is one reason why many bank mergers ultimately fail. Throughout the merger and acquisition process, be sure to thoroughly communicate and double-check that employees are adapting to the change.

Not Enough Commitment

Execution risk is another major danger in bank mergers. In some cases, banking executives don’t commit enough time and resources into bringing the two banking platforms together – and the resulting impact on their customers causes the newly merged bank to fail completely. Avoid this mistake by DEDICATING ENOUGH RESOURCES FOR A FULL INTEGRATION of the two financial institutions.

Customer Impact And Perception

While undergoing an M&A event at your bank, it’s critical that you pay attention to the impact it has on your customers. ESPECIALLY WITH SMALLER COMMUNITY BANKS, customers often respond very emotionally to a bank acquisition – so it’s essential that you manage customer perception with regular, careful communication. And once the merger or acquisition is fully underway, remember to consider the impact on your customers at every stage: Anything from changing technology platforms to financial products could impact your customers negatively if you don’t pay attention.

Compliance And Risk Consistency

A final danger to consider during your next merger or acquisition is the risk and compliance culture of each bank involved. Every financial institution handles BANKING COMPLIANCE AND FEDERAL BANKING REGULATIONS differently, but it’s important that the two merging banks agree on their approach moving forward. When two mismatched risk cultures clash during a bank merger, it negatively affects the profitability of the business down the road if they haven’t come to a working solution.

Bank mergers and acquisitions are complex procedures with the possibility of extraordinary payoff – or extraordinary peril – so it’s important that you handle your upcoming M&A event with care. Keep these benefits and dangers in mind as you combine the processes of each different bank, and you’ll be on your way to a successful merger or acquisition.

The government of Ghana is pursuing a policy that provides appropriate mechanisms to minimise financial system instability and deal with emerging risks using effective supervision and regulatory measures. Through the policy, the government seeks to make the financial sector of the country the preferred source of finance for domestic companies and further develop, strengthen and modernise the financial sector to support the government’s economic vision and transformational agenda. The Bank of Ghana (BoG) shall support the general economic policy of the government by promoting economic growth, effective and efficient operation of banking and credit systems in the country. The BoG, in order to create a stable and efficient financial system, has the following on its agenda:

• increased disclosure requirements for financial institutions in line with Pillar III of the Basel accord;
• strong capital adequacy of financial institutions so that they will be Basel II and III compliant; and
• effective supervision and regulatory measures.