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

The major reason behind the collapse of some banks and financial institutions in the recent past is increase in the number of NPA's (Non Performing Assets). Banks offer loans of high amount to the corporations without keeping any collaterals and looking into the future prospects of the company. Ultimately the loans turn out to be bad debts as they are unable to pay off the debt amount. This results in increase of NPA's (Nnn performing assets) of the banks and financial institutions.They thus ultimately crash.

Difficulties associated with the financial system :

• Increase in the number of non performing assets.
• No collaterals at the time of taking loans
• Few influential people or staff pressurize to give the loan and thus turning out to be bad debts
• No proper screening of the documents and the property/ business papers

These issues can be resolved by taking appropriate measures.

• Loan to be given to the company based on the credentials of the company and not on the credentials of the owner of the company.
• Proper screening of the documents to be done.
• Collaterals to be kept at the time of taking loans.
• Loan should never be given based on certain influences and proper procedures need to be followed at the time of giving loans.
• Number of bad debts to be reduced.