Be careful with cross-border lending, foreign currency exposures – BoG advises financial institutions
The BoG also urged RFIs not to introduce or implement such products, market entries, or delivery channels unless the required regulatory approvals have been obtained, where applicable.
The Bank of Ghana has cautioned financial institutions to exercise caution in cross-border lending, managing foreign currency exposures, and engaging in trade finance. The regulator has instructed regulated financial institutions (RFIs) to develop robust policies and procedures to identify, assess, and control country and transfer risks due to macroeconomic, fiscal, political, and financial sector conditions in foreign counterparties.
The directive, part of the Credit Risk Management Directive, applies to banks, savings and loans institutions, finance houses, and financial holding firms.
To protect themselves from fraudulent activities and other types of financial misconduct, RFIs must establish strict policies and carry out thorough due diligence. This includes obtaining references from known parties, checking credit reference bureaus, and investigating the integrity, experience, and financial status of key management personnel.
The Central Bank emphasizes that credit-granting criteria must be well-defined and applied consistently, considering factors such as borrower eligibility, credit types, amounts, tenors, and terms.
In managing credit risk, RFIs should adopt a scalable and adaptable approach, particularly when dealing with borrowers who present limited information. Diversification of loan portfolios across sectors, geographical locations, borrower types, and risk mitigants is encouraged within the constraints of local market structures. For exposures to individuals, RFIs must assess the purpose, structure, repayment sources, borrower risk profile, and sensitivity to economic and market developments.
Regulated financial institutions have until July 1st, 2027, to fully implement the Credit Risk Management Directive, the overarching goal of which is to enhance the resilience of RFIs by ensuring they maintain and implement effective credit risk management systems aligned with their risk-taking activities and capital strength.
Written by urgent.news from Joy Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
