Question

ADAM’S BANKING CAREER
William Adams joined the Skynolim Universal bank when he was discharged from the army. He had just
finished Senior High School when his country called him, and he willingly reported and served. At the bank,
he started as a delivery and pick-up driver, going to all the branches, collecting cheques and taking them to
head office for processing and posting. He started his Chartered Institute of Bankers (CIB) course and earned
a General Banking Diploma. Soon after his diploma, he was transferred to one of the Skynolim Universal
Bank branches in Pomadze as a teller. Meanwhile, Willy continued his education and earned his bachelor’s
degree in Banking and Finance. Immediately, Willy became a Chartered banker, he was picked for bank’s
management trainee program and then promoted to be operation manager at the bank’s main branch. That
was 15 years ago. Willy continued his studies earning a second degree in Investment Management. Today,
Mr. William Adams, a veteran investment banker, is the Managing Director (MD) of Skynolim Universal Bank
in Ghana and an Executive Member of the CIB Council. The current pandemic, Covid-19, with the protocol
of lockdown and staying at home have slowed business globally. Mr. Adams and his management team are
brainstorming to find solutions to the problems Covid-19 may pose to the operation and management of
Skynolim Universal Bank in Ghana.
Required: Answer the following questions from the above preamble.
1. Clearly explain five daily practices of William Adams when he was a Teller at Skynolim Universal Bank,
Pomadze branch.
2. A branch operations manager is the subordinate of a branch manager. Explain two responsibilities of
Mr. Adams when he was promoted as the operation manager of the bank’s main branch.
3. Mr. Adams, the MD for Skynolim Universal Bank has the sole responsibility to manage the asset and
liabilities of the bank to ensure favourably conditions of the bank. Explain three of
(ALM).

4. Explain two problems that Skynolim Universal Bank will be facing in the operations and management of
the bank because of Covid-19 pandemic.
5. Clearly explain solutions available to the problems, which Covid-19 poses to Skynolim Universal Bank in
Ghana. ( 5 marks)
[40 marks]
SECTION B (Answer one question from this section)
Q1. PREAMBLE
In Ghana, the problem of financial distress of banks is not new. In 2000, two banks (Bank for Housing and
Construction and the Ghana Co-Operative Bank) were liquidated. On Monday 14 August 2017, there was a
breaking news of the collapse of two banks (Capital Bank and UT Bank) with the third (UniBank) receiving
special attention from the Central Bank with the appointment of KPMG as Official Administrators following
UniBank’s insolvency. In almost a year later, the Central Bank revoked the license of five insolvent banks
( Unibank, Royal bank, Sovereign bank, Beige bank and Construction bank) to form a new Consolidated bank
owned by government. The number of banksfailure is a concern to all stakeholders in the Ghanaian banking
Industry.
Required: Answer the following questions from the above preamble.
a) Explain the term Bank Failure.
b) Explain three determinants of possible bank financial distress that could cause bank failure.

c) Discuss two economic implications of bank failure.
[20 marks]
Q2. PREAMBLE
The culture of poor corporate governance practice permeates indigenous business culture. In fact, since
independence, Ghanaian industries have been grappling with sound corporate governance practices;
largely because chunks of businesses are owned by family, friends or political cronies. The common
refrain in Ghana is that “the business belongs to my uncle, my auntie, my father, mother etc., so I can do
what I want with the money”. This cultural cancer has permeated in the governance of some indigenous
banks. The issue of lack of capacity or ‘incompetence’ of boards to enforce good governance practice cuts
across government owned banks and indigenous owned banks. According to Sanusi (2010), Nigeria

boards and executive management in some major banks were not well equipped to run their institutions.
Perhaps the same can be said of the boards of the banks that have collapsed so far in Ghana.
Required: Answer the following questions from the above preamble.
a) Explain the term ‘Corporate Governance’ from a banking industry perspective.
b) Explain three determinants of weak corporate governance that could lead to the insolvency of
banks in Africa.
c) Discuss two implications of ensuring good governance by appointing non-executive directors with
the required qualification and experience.

pls the answers should be in essay form and it should be in word document or pdf

Answer 1

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From a banking industry perspective, corporate governance involves the manner in which their boards of directors and senior management govern the business and affairs of individual banks, affecting how banks set their corporate objectives, run day-to-day operations, consider the interests of various stakeholders, align corporate activities with the expectation that banks will operate in a safe and sound manner and in compliance with applicable laws and regulations and protect the interests of depositors.

Sound Corporate Governance Practices for Banks

According to the paper some of the best corporate governance practices for banks include establishing strategic objectives and a set of corporate values communicated throughout the organization, strong risk management functions, special monitoring of risk exposures, setting and enforcing clear lines of responsibility, etc.

Role of RBI In Promoting Corporate Governance: The growing competitiveness and interdependence between banks and financial institutions in local and foreign markets have increased the importance of corporate governance and its application in the banking sector. Corporate governance in banks can be achieved through a set legal, accounting, financial and economic rules and regulations. To make sure that the competence and integrity in banking sector is maintained, the need for uniform standards of the concept of governance in private and public sector is emphasized. The regulatory framework implemented by the central bank can affect the overall well being of banking sector.

Best Practices of Banking System In Corporate Governance: Good governance can be built based on the business practices adopted by the board of directors and management. Many bank failures in the past have been attributed to inadequate and insufficient management which enabled the banks to accept low quality assets and assume additional risks that extend beyond the level appropriate for the banks’ capacity[12].

Important commandments for ensuring corporate governance in banks are:

• Banks shall realize that the times are changing
• Banks shall establish an Effective, Capable and Reliable Board of Directors
• Banks shall establish a Corporate Code of Ethics for themselves
• Banks shall consider establishing an office of the Chairman of the Board
• Banks shall have an effective and Operating Audit Committee, Compensation Committee and Nominating/ Corporate Governance Committee
• Banks shall consider Effective Board Compensation
• Banks shall disclose the information
• Banks shall recognize that duty is to establish Corporate Governance Procedures that will serve to enhance shareholder value

Recent Scenario

Recent steps taken by Banks in India for Corporate Governance are:

• Introduction of non executive members on the Board
• Constitution of various Committees like Management Committee, Audit Committee, Investor’s Grievances Committee, ALM Committee etc.
• Gradual implementation of prudential norms as prescribed by RBI
• Introduction of Citizens Charter in Banks
• Implementation of “Know Your customer” (KYC) concept.

Summing Up: Banks and financial sector being a highly service oriented sector, making corporate governance effective is a great challenge. More so, when the driving force of commercial banks is to grab the opportunity, trading profits with only focus on profitability. The levers of systemic control have to be not only progressively tightened but they are also to be scrutinized from the point of deliverables. Moreover the recent global financial crisis leading to the demise of several reputed global investment banks exposes the fissure in the effectiveness of corporate governance model.

Banking sector is the key for monetary conditions in a country. Due to the special nature of the activities carried on by the banks, they face a lot of problems as far as the area of corporate governance is concerned. In the Indian scenario, due to the peculiar nature of bank holdings there are a lot of embedded conflicts. The guidance paper issued by the Basel Committee is of paramount significance in enforcing corporate governance standards in various countries across the world.

Corporate Governance is now identified and acknowledged as a powerful tool to generate trust and confidence in an institution. The trend in the world of targeting governance practices in the banking sector to be at the cutting edge of prevailing practices worldwide is a significant step in the right direction and should continue to be so in the future as well.

India has one of the best Corporate Governance legal regimes but poor implementation. SEBI has carved out a certain more stringent provisions relating to listed companies as a condition of the Listing Agreement.

The special nature of banking institutions necessitates a broad view of corporate governance where regulation of banking activities is required to protect depositors. In developed economies, protection of depositors in a deregulated environment is typically provided by a system of prudential regulation, but in developing economies such protection is undermined by the lack of well-trained supervisors, inadequate disclosure requirements, the cost of raising bank capital and the presence of distributional cartels. Due to special nature of the activities carried on by the banks, they face a lot of problems as far as the area of corporate governance is concerned. Also, in the Indian scenario, due to the peculiar nature of bank holdings there are a lot of embedded conflicts. There exists a doubt as to what standard should be applied while enforcing corporate governance in banks. Central banks play an important role in this regard. As far as best corporate governance practices for banks are concerned, they may include realization that the times are changing, establishing an effective, capable and reliable board of directors, establishing a corporate code of ethics by the banks for themselves, considering establishing an office of the chairman of the board, having an effective and operating audit committee, compensation committee and nominating/ corporate governance committee in place, considering effective board compensation, disclosing the information and recognizing their duty to establish corporate governance procedures that will serve to enhance shareholder value.

Finally this study concluded that, the corporate governance practices in the banking and financial sector in India should improve for best investment policies, appropriate internal control systems, better credit risk management, better customer service and adequate automation in order to achieve excellence, transparency and maximization of stakeholder’ value and wealth.

B:

The Organization for Economic Co-operation and Development (OECD) considers that corporate governance has the role to specify the distribution of rights and of responsibilities between different categories of people involved in the company like: board of directors, executives, shareholders and others, establishing rules and procedures for making decisions on the activity of a certain company. OECD also mentions that corporate governance is at the same time, both a set of relations between management, board of directors, shareholders and other interested groups and the structure through which company sets the objectives and the necessary means to reach those, but also the system of incentives offered to the board of directors and management in order to increase the objectives in the interests of shareholders and society.

According to Alexandru Panfilii, the main causes of failure behind the scandals of poor corporate governance are:

• Management incompetence.

• Non-observance of the procedures stipulated in internal regulations.

• Insufficient attention paid to risk management.

• Inconsistent distribution of duties and responsibilities.

• Inefficiency of internal audit.

• Ignorance showed to the signals provided by external audit.

• Influencing the external auditors to express an audit opinion inconsistent with reality.

Trying to carry out a more detailed analysis could be said that the boundaries within which all this factors could be grouped, is organizational culture, motivational element that differentiates the business entities, the principles and values which they lead. Analysis of the influence of culture on corporate governance has led to the identification of three groups of individuals, distributed as for Anglo-Saxon countries, with major U.S. and United Kingdom exponents, continental European countries, like Netherlands and Italy, and the third group represented by Asian countries, having as an exponent mainly Japan. In the U.S. and UK a significant number of large national companies are listed on stock exchanges, financial markets shows a high degree of liquidity, and ownership and control rights are frequently exchanged. In Japan and Germany, instead, major banks, insurance companies and government held the prevalent system of management, and many companies have reference shareholders and private law, which has the effect of limiting in the number of hostile takeovers

As possible ways to avoid future cases of collapse may be the following:

• Separation of powers of the Chairman and CEO. Each has to activate on its own pathway, otherwise we could reach a situation of excessive concentration of power and control capabilities of the supervisory board to be diluted.

• Integrity and missing of conflict of interest between managers, that should not target capital gains from the position they occupy, rather than wage remuneration they deserve.

• The existence of a strict flow of information so that decision-makers, have to receive timely and adequate information to perform their duties.

• Drawing concrete tasks and functions, especially in management teams, where decisions require a sustained effort and a great responsibility.

C:

Management and Board Governance

1. The Board of Directors has to exercise strategic oversight over business operations while directly measuring and rewarding management’s performance. Simultaneously the Board has to ensure compliance with the legal framework, integrity of financial accounting and reporting systems and credibility in the eyes of the stakeholders through proper and timely disclosures.

2. Board’s responsibilities inherently demand the exercise of judgment. Therefore the Board necessarily has to be vested with a reasonable level of discretion. While corporate governance may comprise of both legal and behavioral norms, no written set of rules or laws can contemplate every situation that a director or the board collectively may find itself in. Besides, existence of written norms in itself cannot prevent a director from abusing his position while going through the motions of proper deliberation prescribed by written norms. Therefore behavioural norms that include informed and deliberative decision making, division of authority, monitoring of management and even handed performance of duties owed to the company as well as the shareholders are equally important.

3. However in a situation where companies have grown in size and have large public interest potential, it is important to prescribe an appropriate basic framework that needs to be complied with by all companies without sacrificing the basic requirement of allowing exercise of discretion and business judgment in the interest of the company and the stakeholders. The liability of compliance has to be seen in context of the common law framework prevalent in the country along with a wide variety of ownership structures including family run or controlled or otherwise closely held companies.

Board of Directors
4. Obligation to constitute a Board of Directors :- 4.1 The Board of Directors of a company is central to its decision making and governance process. Its liability to ensure compliance with the law underpins the corporate governance structure in a company, the aspirations of the promoters and the rights of stakeholders, all of which get articulated through the actions of the Board. There should be an obligation on the part of a Company to constitute and maintain a Board of Directors as per the provisions of the law and to disclose particulars of the Directors so appointed in the public domain through statutory filing of information. 4.2 Such obligation should extend to the accuracy of the information and its being updated regularly as well as on occurrence of specific events such as appointment, resignation, removal or any change in prescribed particulars of Directors.

Minimum and Maximum Number of Directors
5.1 Law should provide for minimum number of directors necessary for various classes of companies. The present prescribed requirement is considered adequate. However new kinds of companies will evolve to keep pace with emerging business requirements. Law should therefore include an enabling provision to prescribe specific categories of companies for which a different minimum number may be laid down 5.2 The obligation of maintaining the required minimum number of directors on the Board should be that of the Company 5.3 There need not be any limit to the maximum numbers of directors that a Company may have. Limit to maximum number of directors should be decided by the company by/in the Articles of Association. 5.4 Every Company should have at least one director resident in India to ensure availability in case any issue arises with regard to the accountability of the Board.

Manner of appointment, removal and resignation of Directors
6.1 The ultimate responsibility to appoint/remove directors should be that of the Company (Shareholders). If the Directors themselves are legally disqualified to hold directorships, they should have an equal responsibility for disclosing the fact and reasons for their disqualification. 6.2 Government should not intervene in the process of appointment and removal of Directors in non-Government companies. It is important that role and powers of Government, under the present provisions to intervene in appointment of Directors be reviewed and revised, vesting the responsibility on the shareholders of the company. 6.3 Presently, as per the provisions of Schedule XIII to the Companies Act, it is necessary to obtain the approval of the Central Government for appointing a person who is not resident in India, i.e. a person who has not been staying in India for a continuous period of not less than 12 months immediately preceding the date of his appointment as a managerial person. 6.4 In today’s competitive environment, it may be necessary for a company to appoint a person as Managing Director or Whole-time Director or Manager who is “best suited for the job”. The Company should, therefore, have an option to choose such person not only from within India, but from other countries as well. In the light of the above, it is recommended that requirement of obtaining the Central Government’s approval under the Companies Act for such non-resident managerial person should be done away with. Such person would continue to be subject to passport/visa, RBI and other Government requirements. 6.5 Duty to inform ROC of particulars regarding directors including their appointment and removal/ resignation/ death, or otherwise ceasing to be Directors should be with the company. Every Director, in turn, should be required to disclose his residence and other particulars, as may be prescribed, to the Company. 6.6 Resignation should be recognized as a right to be exercised by the director and should be considered in light of the recommendations indicated at para 21.1-21.8 below).

Age limit for Directors
7.1 No age limit need be prescribed as per law. There should be adequate disclosure of age in the company’s documents. It should be the duty of the Director to disclose his age correctly. 7.2 In case of a public company, appointment of directors beyond a prescribed age say 70 years, should be subject to a special resolution by the shareholders which should also prescribe his term. Continuation of a director above the age of 70 years, beyond such term, should be subject to a fresh resolution.

Independent Directors
The Concept and Numbers of Independent Directors
8.1 The Committee is of the view that given the responsibility of the Board to balance various interests, the presence of Independent directors on the Board of a Company would improve corporate governance. This is particularly important for public companies or companies with a significant public interest. While directors representing specific interests would be confined to the perspective dictated by such interests, independent directors would be able to bring an element of objectivity to Board process in the general interests of the company and thereby to the benefit of minority interests and smaller shareholders. Independence, therefore, is not to be viewed merely as independence from Promoter Interests but from the point of view of vulnerable stakeholders who cannot otherwise get their voice heard. Law should, therefore, recognize the principle of independent directors and spell out their role, qualifications and liability. However requirement of presence of Independent directors may vary depending on the size and type of company. There cannot be a single prescription to suit all companies. Therefore number of Independent directors may be prescribed through rules for different categories of companies. However a definition of independent director should be incorporated in the Company law. 8.2 In general, in view of the Committee a minimum of one third of the total number of directors as independent directors should be adequate for a company having significant public interest, irrespective of whether the Chairman is executive or non-executive, independent or not. In the first instance this requirement should be extended to public listed companies and companies accepting public deposits. The requirements for other types of companies may be considered in due course. 8.3 In certain cases Regulators may specify requirement of Independent Directors for companies falling within their regulatory domain. Such Regulators may specify the number where provision for appointment of Independent Directors has been extended to a particular class of companies under the Companies Act. 8.4 Nominee directors appointed by any institution or in pursuance of any agreement or Government appointees representing Government shareholding should not be deemed to be independent directors. A view point was expressed that nominees of Banks/Financial Institutions (FIs) on the Boards of companies may be treated as “Independent”. After detailed deliberation, the Committee took the view that such nominees represented specific interests and could not, therefore, be correctly termed as independent. 8.5 There should be no requirement for a subsidiary company to necessarily co-opt an independent director of the holding company as an independent director on its board. Definition of Independent

Director/ Attributes of Independent Directors
9.1 The Committee was of the view that definition of an Independent Director should be provided in law. 9.2 The expression ‘independent director’ should mean a non-executive director of the company who :- a) Apart from receiving director’s remuneration, does not have, and none of his relatives or firms/companies controlled by him have, any material pecuniary relationships or transactions with the company, its promoters, its directors, its senior management or its holding company, its subsidiaries and associate companies which may affect independence of the director. For this purpose “control” should be defined in law. b) is not, and none of his relatives is, related to promoters or persons occupying management positions at the board level or at one level below the board; c) is not affiliated to any non-profit organization that receives significant funding from the company, its promoters, its directors, its senior management or its holding or subsidiary company; d) has not been, and none of his relatives has been, employee of the company in the immediately preceding year; e) is not, and none of his relatives is, a partner or part of senior management (or has not been a partner or part of senior management) during the preceding one year, of any of the following:- i] the statutory audit firm or the internal audit firm that is associated with the company, its holding and subsidiary companies; ii) the legal firm(s) and consulting firm(s) that have a material association with the company, its holding and subsidiary companies; f) is not, and none of his relatives is, a material supplier, service provider or customer or a lessor or lessee of the company, which may affect independence of the director; g) is not, and none of his relatives is, a substantial shareholder of the company i.e. owning two percent or more of voting power. 9.3 Explanation :- For the above purposes :- (i) “Affiliate” should mean a promoter, director or employee of the non-profit organization. (ii) “Relative” should mean the husband, the wife, brother or sister or one immediate lineal ascendant and all lineal descendents of that individual whether by blood, marriage or adoption. (iii) “Senior management” should mean personnel of the company who are members of its core management team excluding Board of Directors. Normally, this would comprise all members of management one level below the executive directors, including all functional heads. (iv) “Significant Funding” – Should mean 25% or more of funding of the Non Profit Organization. (v) “Associate Company” – Associate shall mean a company which is an “associate” as defined in Accounting Standard (AS) 23, “Accounting for Investments in Associates in Consolidated Financial Statements”, issued by the Institute of Chartered Accountants of India.