Ghana`s banking sector crisis and its impact on correspondent banking activities


Ghana has just come out from a banking sector clean-up that sought to restore investor and public confidence in the sector instituted by the Bank of Ghana (BOG). The licenses of distressed banks were revoked and consolidated; some were merged. More importantly, officials who played key roles leading to the collapse of such banks are facing prosecution and have been barred from playing roles in the financial services industry in Ghana.

The new banking regime has placed sound corporate governance including adherence to acceptable Anti Money Laundering /Counter-Terrorism Financing (AML/CTF) standards at the forefront of corresponding banking practice.

In fact, the reforms in the banking sector which began in August 2017 was successfully completed end of January 2019. We now have a more resilient financial sector, well-positioned to support economic growth. A report from the Ministry of Finance’s 2020 budget statement, page 47 placed the cost of financial sector clean up to some Ghs16.4bn which represented about 5% of the country`s overall Gross Domestic Product (GDP). This comprises Banks (Ghs11.7bn), Savings and Loans/Microfinance Institutions (Ghs2.4bn), Fund Managers (Ghs1.5bn) and Ghana Amalgamated Trust (GAT) (Ghs0.8m)

Since the beginning of the shakeup by the regulator, the focus has mainly been on how some 4million clients and investors who were adversely affected by the cleanup would be able to retrieve their funds. However, the situation also had far-reaching effects for the entire banking industry for Banks who have Correspondent Banking (CB) relationship with some international banks.

Corresponding Banking Defined

In simple terms, Corresponding Banking is the provision of banking-related services by one bank (Correspondent – say ‘Bank A limited’ to another ‘Bank B Limited’ (Respondent). This enables the Respondent to provide its own clients with cross-border products and services that it cannot provide them by itself, typically due to lack of an international network. In other words, a Correspondent is effectively an intermediary for the Respondent and executes, processes clears payment transactions for clients of the Respondent.

The impact of the sector reforms has forced major corresponding banks to take a strong view on some banks in areas of:

Onboarding restriction for prospective Respondent Banks

Following the banking sector crisis, a lot of international banks have scaled-down on onboarding new banks who had the appetite to establish new Corresponding bank relationships. This is attributable to the weak Anti Money Laundering / Counter-Terrorist Financing (AML/CTF) framework of some of the banks in Ghana.

Inadequate Sanction Programmes

Sanctions are legal measures imposed by countries or groups of countries that prohibit or restrict dealings with specific individuals, entities, or countries. Due to elevated risk in CB relationships where the underlying clients of respondent bank clients are not known, most international banks have updated their sanctions framework with the expectation that respondent banks will meet such high international standards.

It`s important for Banks to put in place a strong mechanism to check all potential ‘red flags’ that may impact their CB relationships. Some of these red flags include; Customer/counterparty refusing to provide further information on parties/locations, unusual transaction structures which do not make commercial sense, indications that client company is controlled from a Sanctioned Country (e.g. shareholders are from a Sanctioned Country or parent company is incorporated in a Sanctioned Country) Correspondence indicating a Sanctioned Country address/fax number, Email address domain shows a Sanctioned Country.

Reduced credit exposures on Banks

Every correspondent bank offering Trade Finance services such as Financial Institution Trade Loans, Letters of Credit Confirmation and Discounting, Bonds and guarantees requires the CB bank to provide credit lines (Limit) to support such products of the respondent bank. However, following the financial crisis, some international banks have reduced their exposures on some banks due to their low levels of Capital and Capital Adequacy Ratios (CAR). Some CB banks are not allowed to expose to some banks more than 25% of their Tier 1.

Weak Anti-Money Laundering / Counter-terrorism Financing (“AML/CTF”)

Ghana is currently on Financial Action Task Force’s (FATF) list of countries with strategic AML deficiencies. The Inter-Governmental Action Group against Money Laundering in West Africa (“GIABA”) conducted a follow-up review on Ghana in October 2018 and according to that report, Ghana made a high-level political commitment to work with the FATF and GIABA to strengthen the effectiveness of its AML/CFT regime in order to address any related technical deficiencies.

Ghana has since been making important progress in relation to addressing the technical compliance deficiencies in terms of implementing and improving AML measures. This requires banks to strengthen their AML/CTF framework and procedures to meet international banking practices including conducting the appropriate customer due diligence.

Enhance Transaction Screening and Monitoring System

The financial crisis saw many international banks requesting respondent banks to enhance their transaction screening and monitoring systems. It is interesting to note that in this 21st century where fraud and Cybersecurity has become the order of the day, some banks are still manually monitoring transactions instead of adopting an automated approach to transaction monitoring.

Manual identification takes place through the vigilance of employees who identify suspicious behaviour of a client either through their engagements with the client, through media reports or thorough assessment of the transactions of the client. It`s the expectation of Correspondent Banks that, respondents have well-automated transaction screening and monitoring systems.

The list can go on and on. However, to sum up, Banks must pay close attention to current deficiencies in AML/CTF, Dodd-Frank and Wolfsburg Questionnaire, sanctions, screening, monitoring and all corresponding banking activities that may impact their underlying clients

Disclaimer: The views expressed are personal views and doesn’t represent the institution the writer work for or the publishing firm.


Writer: Carl Odame-Gyenti

About the writer

Carl Odame-Gyenti is a third-year PhD (Financial Management) candidate, a Finance and Telecom enthusiast, managing local and global Investors, Intermediaries, Non-Bank Financial and Financial Institution relationships with an international bank in Ghana. He has embarked on several international assignments in London, Singapore, Dubai, Kenya, Nigeria and Southern African markets. He has a passion for youth and community development. Contact:, Cell: +233-204-811-911

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