Can corporate governance be blamed for listed bank failure?

One morning in August, 2017, Ghana wakes up to be greeted with the news of the collapse of two indigenous banks UT and Capital banks. The news did not just surprise many in the financial sector, knowing the strides these banks have made over the period, but also sent reminder across the sector on the helpless collapse of Bank for Housing and Construction and Co-operative Bank Ghana Limited in 2000. As if that was not enough, two years later in 2017, the Bank of Ghana (BoG) announces another shocking collapse of five other major indigenous banks Unibank, Beige, Sovereign, Construction, and Royal Banks. It is worth noting that these occurrences are not unique to Ghana alone but its characteristically a global phenomenon. Backdoor in Nigeria, between the year 2000 and 2005, 89 existing banks was reduced to 25 larger, better-capitalized banks (PwC, 2018; Hesse, 2007, OECD, 2006).

The phenomenon has been attributed to several factors including asset securitization, mortgages, bank capitalization, dilution of non-traditional banking activities (DeYoung and Torna, 2013; Berger and Bouwman, 2013). Studying bank failures in 11 East Asian markets, Lin and Yang, (2016) found that, weak bank fundamentals largely contributed to bank failure. This included capital inadequacy, low asset quality and liquidity challenges. Additionally, their study found undesirable economic conditions (relating to GDP growth rates, inflation rates, and real interest rates) weakened the survival of banks. Berger et al (2016) studied over 300 banks and found that key governance characteristics including ownership and management structure - high shareholdings of lower-level management and non-chief executive officer(non-CEO), increase failure risk of banks significantly. Other studies (including Cole and White 2012; Schaeck 2008) have attributed bank failure to accounting variables such as capital ratios, nonperforming loan (NPL) ratios, earnings among others.

Among these studies, there seem to be the prominence of regulatory inefficiencies and laxity, weak bank fundamentals and accounting variables as the main contributor to the phenomenon of bank failure. The role of corporate governance seems almost absent in the discourse of bank failure. Particularly in the case of Ghana, the recent failure of banks (at an unsubstantiated levels) been attributed to corporate governance failure and laxity of regulatory processes.

In this exercise, we extent the conversation by investigating whether corporate governance can be blamed for the almost incessant bank failures being witnessed in Ghana. Here we focus on governance elements of accountability, integrity, efficiency and transparency, a departure from the few studies that touched on key governance characteristics (ownership structure) and bank failure.

As a student of corporate governance and an interested party to the banking sector, engage class mates one the following conversation;

What Corporate Governance elements was deficient on the collapsed/consolidated banks?

What infractions could have possibly caused these deficiencies identified above?

What would you have done to correct the deficiencies?