Corporate governance stability in Ghana’s banking sector: CalBank’s recent executive changes in focus

Corporate governance is a critical pillar that shapes the performance, stability, and sustainability of financial institutions globally. 

In Ghana, the banking sector has increasingly emphasized improving corporate governance practices, particularly after the turbulent banking sector clean-up initiated by the Bank of Ghana in 2017.

Recent developments at CalBank PLC have sparked discussions about the evolving nature of corporate governance in the sector, particularly regarding executive and board transitions.

The bank’s response to claims of dismissals, clarifying that the retirement of key board members was a natural governance process, sheds light on the broader dynamics within Ghana’s banking sector.

This article examines corporate governance practices in Ghana’s banking industry, the implications for future governance stability, and the financial repercussions of ineffective governance.

State of corporate governance in Ghana’s banking sector

Corporate governance in Ghana’s banking sector has undergone significant reform in recent years, particularly following the Bank of Ghana’s regulatory interventions between 2017 and 2019

The banking clean-up, which led to the collapse of several financial institutions, was largely driven by the failure of banks to adhere to sound governance practices.

Issues such as insider lending, poor risk management, conflicts of interest, and lack of transparency in board decisions contributed to the insolvency of some banks, ultimately costing the Ghanaian government over GHS 11.2 billion to safeguard depositors’ funds.

In response, the Bank of Ghana introduced more stringent corporate governance regulations, including the Corporate Governance Directive (2018), aimed at improving accountability, risk management, and board effectiveness.

Among the notable reforms were limits on tenures for executive and non-executive directors, the separation of board chairperson and CEO roles, and mandatory board committees for audit, risk, and remuneration oversight. These reforms have been instrumental in stabilizing the banking sector and rebuilding public confidence.

CalBank’s leadership changes and governance practices

CalBank’s recent announcement concerning changes at the executive and board levels aligns with these statutory governance cycles.

The bank stated on September 30, 2024, denying reports of forced dismissals, clarifying that the departures were due to the expiration of tenures and natural board transitions.

Specifically, three independent non-executive directors, Mr Ben Barth, Dr Cynthia Forson, and Mr Richard Arkutu retired following the conclusion of their terms at CalBank’s 2024 Annual General Meeting (AGM) held on September 4.

The decision to respect statutory limits on board tenures is a positive signal of corporate governance adherence. It reflects a proactive approach toward avoiding entrenched leadership, which can result in governance stagnation and reduced board oversight.

The rotation of directors ensures fresh perspectives and encourages a more dynamic risk management culture, essential for navigating the increasingly complex financial environment in Ghana and globally.

Implications of effective corporate governance for the banking sector

Strong corporate governance is essential to maintaining financial stability, preventing crises, and fostering investor confidence. A key component of effective governance is ensuring transparency in leadership transitions, as demonstrated by CalBank’s clarification regarding the departure of its board members.

In an industry where governance failures have historically led to the collapse of banks, these transitions play a critical role in ensuring continuity while addressing any governance concerns.

Corporate governance in the banking sector is not just a regulatory requirement but a financial imperative.
According to a 2022 report by the Ghana Association of Bankers (GAB), banks that adhered to strict governance practices experienced stronger financial performance.

For example, banks that complied with the Bank of Ghana’s corporate governance directives reported higher capital adequacy ratios (CARs) of 21.5%, compared to 15.6% for those with weaker governance structures.

In addition, non-performing loans (NPL) were significantly lower among well-governed banks, standing at 14.2% versus 22% for banks with governance deficiencies.

The financial implications of poor governance can be catastrophic. The collapse of banks during the 2017-2019 crisis resulted in over 3,000 job losses, loss of investor confidence, and heightened scrutiny from international credit rating agencies.

The resultant clean-up cost to the government, which was approximately GHS 11.2 billion, also strained public finances, exacerbating fiscal deficits and contributing to inflationary pressures.

The future of corporate governance visibility in Ghana’s banking sector

Looking forward, the visibility of corporate governance in the operations of Ghana’s banks is expected to increase. With increasing regulatory pressure and scrutiny from international investors, banks are likely to invest more in governance structures, particularly in digital governance, transparency, and board competence.

The move towards more digitized and transparent governance frameworks will help banks mitigate the risk of governance failures and increase their resilience to shocks.

As Ghana’s financial sector becomes more interconnected with global markets, compliance with international best practices in corporate governance will also be critical.

Institutions such as CalBank are positioning themselves as governance role models by adhering to international corporate governance standards, which include fostering board independence, strengthening risk management, and embracing digital governance tools to improve transparency.

However, challenges remain. One major issue is the potential politicization of corporate governance in state-owned banks, where appointments can be influenced by political considerations rather than merit-based selection processes.

Such practices can undermine the integrity of governance frameworks and lead to systemic risks in the financial sector. Ensuring the insulation of board appointments from political interference will be a key governance issue in the future.

Conclusion

CalBank’s recent executive changes reflect a growing trend in Ghana’s banking sector toward stricter adherence to corporate governance practices.

The retirement of key board members after their statutory tenures highlights the importance of maintaining governance structures that are transparent, accountable, and forward-looking.

As corporate governance visibility increases across the sector, banks must continue to evolve their practices in line with both local regulations and international best practices.

The financial benefits of strong governance, such as improved investor confidence, enhanced risk management, and sustainable financial performance underscore its importance to the future of the banking sector in Ghana.

In the coming years, the challenge will be to ensure that corporate governance reforms translate into long-term stability and growth, as the sector continues to face new risks and opportunities in an increasingly complex global financial landscape.

Effective governance will be the linchpin that ensures the banking sector remains resilient, competitive, and responsive to the needs of Ghana’s economy.