The Bank of Ghana (BOG) is developing legislative instruments on a new banking act to replace the existing banking law of 1989, PNDC Law 225. The legislative instruments are being introduced to enhance the regulatory framework for the banking system in Ghana to cope with recent development in the global banking industry.

Mrs Bertha Frances Smith, Chief Manager of the Banking Supervision Department of BOG, announced on Thursday during the commissioning of the Fishing Harbour Agency of the Trust Bank Limited.

She reminded the governments in the sub-region to co-operate in the financial systems, notably, in the attempt to establish the West African Monetary Union, which is expected to generate tremendous potential benefits to member countries.

However, she said, the benefits would be accompanied by heightened risks for banks as the volume of cross border financial transactions grows, which required bankers to follow best practice behaviour.

There was the need to intensify the risk management practices, monitor the scale and structure of the cross border borrowing, lending and design safety nets in operation. On inflation in the country, Mrs Smith said, it continues to fall as it declined from 40.5 per cent in 2000 and 21.3 per cent at the end of 2001 to 16 per cent, as at March ending.

In 2001, the Cedi depreciated by only 3.7 per cent compared with 49.5 per cent in 2000, while the average discount rate on 91-day Treasury bill has declined from 47.0 per cent at the end of June 2001, to 22.3 per cent as at Friday, April five.

Mrs Smith said the lending rates of banks have not kept pace with the rapid decline in Treasury Bill and deposits rates, indicating that banks were protecting their profitability by maintaining unsustainably high lending rates.

She suggested that as inflation continued to fall, banks should resume lending to industry at lower interest rates to reflect the fall in cost of funds to banks brought about by the current stabilisation policies.

If the public were assured that monetary policy would continue to strengthen and support the process of disinflation, the private sector and the market would be infused with increased confidence to make investment decisions to enhance output and employment.

To this end, Mrs Smith advised banks to review the trend of holding large proportion of assets in short dated instruments like treasury bills by releasing more funds into credit for viability and profitability to reflect the focus of banking business of financial intermediation.

This calls for strengthening and sharpening their credit administration skills through the training of staff and adoption of proper recruitment policies to ensure that credit facilities were granted with circumspection to facilitate prompt and satisfactory recoveries.

As the economy continued to be mainly cash driven with currency outside the banking sector forming a significant proportion of money supply, the Chief Manager called for aggressive and innovative marketing strategies to mobilise idle funds into the banking system.

This would enhance the effectiveness of monetary policy as well as improve credit delivery to viable productive ventures, she added.

Mrs Smith said due to competition in the banking system, banks need to justify their continued existence by ensuring a return on capital and this called for adopting "know your customer/client" policy, as a way of minimising money laundering and other illegal transactions.

Mrs Smith commended the Trust Bank for its achievement for its five years of existence and advised it to open branches and agencies at other economically resourceful and viable areas of the country outside Accra-Tema and Kumasi metropolis to give it a national outlook.

Mr Jean-Marie Marquebreuco, Managing Director of the Trust Bank, announced that all the branches and agencies of the bank were networked making customers to transact business at any branch and not at the specific branch at which an account was opened.