What is financial regulation and why does it matter?

Capital markets in Ghana

The Ghana Stock Exchange (GSE) was set up on the 26 of November 1990 and has laid down rules and regulations for companies seeking to be listed on the Exchange.

The GSE operates under the rules and regulations of the Securities Industry Law 1993 (PNDCL 333) as amended.

The Securities and Exchange Commission (SEC) sets rules and laws to create level playing ground for Investors, Brokerage Firms and Listed Companies on the GSE. It serves to boost investor confidence and protect the investor on the Exchange. The SEC also sets laws for unit and mutual trust operators in the country.

Banking sector in Ghana

The Bank of Ghana (BoG) Act 2002 (Act 612) has been replaced with the Banking Act 2004 (Act 673) to strengthen the regulatory and supervisory functions of BoG.

In February 2003, BoG formally introduced the Universal Banking Business License (UBBL), which is expected to bring more competition within the industry. To operate under the UBBL, existing banks must have a minimum net worth of ¢70billion (excluding statutory reserves), and new banks should have a paid-up capital of ¢70billion. Banks are required to hold 9% of the cedi and forex deposit base with BOG on daily basis as primary reserves and 35% of their deposit base in cedi denominated assets as secondary reserves.

The Government of Ghana Index-Linked Bonds (GGILBs) was introduced in 2001, which as part of the reserve requirements converted Government of Ghana (GoG) short-term liabilities into long-term loans. BoG requires banks to hold 15% of their total deposits in GGILBs. The GGILB is now being phased out by the new 2nd and 3rd year fixed or floating bonds.

Insurance industry in Ghana

The Ghanaian insurance market is a thriving one with huge potential for growth in both the life and non-life markets. The competition is however keen in the Life market as a result of the anticipated passage of the new insurance bill which will require the separation of Life and Non-Life businesses and an increase in the capital requirement to ¢7billion.

The Ghanaian market continues to demonstrate some unique characteristics such as:

• Continuous growth as insured seek to self-insure more of their risks.
• Tougher competition for many finite products.
• A growing presence in both life and non-life re-insurance.

Product development continues to be concentrated on the core property/casualty market and insurers are constantly seeking to identify alternative solutions for clients whose needs are not being addressed.

The challenges facing the industry includes the underpricing of policies and the worsening position of bad debts which has resulted in most insurance companies making significant underwriting losses.

The need for insurance firms to spread their risks in order to reduce the impact of risk during any catastrophe led to the creation of the Ghana Reinsurance Company, which is mandated to receive legal cession 20% of premium as reinsurance. (Source PWC)