The Central Bank, during 2007, introduced a Prompt Corrective Action (PCA) framework. Under the PCA, the Central Bank regularly monitors each bank’s performance against five critical indicators. It allows the Central Bank to obtain early warning signals if a bank is in difficulty. This is a way to promote the safety and the soundness of the financial system and avoid bank failure. The Central Bank of The Gambia (CBG) will implement a Prompt Corrective Action (PCA) framework whereby any violation of the following will trigger appropriate action as may be stipulated in the framework:
- Violations of the statutes (Central Bank, Banking institutions, Money Laundering and, Insurance Acts)
- Violations of prudential and financial ratios
- Violations of Corporate governance standards.
(a) On the level and modalities for the supervision and examination of banks in The Gambia;
Bank supervision is the process of monitoring banks to ensure that they are carrying out their activities in accordance with laws, rules and regulations, and in a safe and sound manner and bank examination are used to collect on-the-spot information that will indicate the current financial condition of a bank and its compliance with applicable laws and regulations.
According to the staff of the Financial Supervision Department of Central Bank of The Gambia, bank examiners use both off-site and on-site supervision to carry out their supervisory functions.
On-site supervision of banks entails physical presence of regulators in the financial institutions to evaluate their internal controls, compliance with the laws and regulations governing their operations with a view to determining their overall risk exposure. Emphasis is placed on their capital, asset quality of management, the strength of earnings and the adequacy of liquidity.
The off-site supervision of banks is carried out by the Banking Supervision Department of the and involves essentially the appraisal of banks returns. Essentially, it serves as an early warning device to detect a bank’s emerging financial problem. This is accompanied by analyzing key bank financial ratios and other financial data that are generated from periodic bank financial reports that are submitted to the supervisor.
Section 62 (1) of the Central Bank Act, 2005 provides that the bank shall exercise prudential supervision over banking institutions in accordance with the provisions of the Financial Institutions Acts 2003.
Section 62 (2) further provides that the bank shall, wherever necessary, seek the co-operation of, and co-operate with banking institutions in the Gambia to-
(a) Promote and maintain satisfactory deposit taking services for the public; and
(b) to ensure high standards of conduct and management throughout the deposit taking system.
According to Section 27of the Banking Act 2009, the Bank shall cause an examination to be made of each banking institution whenever in its judgment an examination is necessary or expedient in order to determine whether or not-
- the institution is in a sound banking condition
- the requirements of this Act have been complied with in the conduct of its business.
(2) For the purpose of determining the condition of a banking institution and its compliance with this Act, the Bank may, at any time, cause an examination to be
made of any of its associates or affiliates in The Gambia to the same extent that an examination may be made of the banking institution.
(3) The Governor shall have the power to support one or more qualified person (s) other than the officers of the Bank to conduct examination of investigation, under conditions of confidentiality of the books and affairs of the bank.
Section 28 provides that a banking institution shall –
(a) produce and cause its affiliates and associates to produce for the inspection of any examiner appointed by the Bank at such times as the examiner specifies, all books, minutes, internal operations manuals, accounts, cash, securities, documents, vouchers and other documents relating to its business in The Gambia; and
(b) supply all information concerning its business in The Gambia as may reasonably be required by the examiner within such time as the examiner specifies.
(2) If a banking institution or an affiliate or associate without reasonable excuse, the proof of which shall be on it, fails to comply with the requirements of subsection (1), it commits an offence and is liable on conviction to a fine not exceeding one thousand dalasis in respect of every day during which the default continues.
(3) If an information supplied or item produced to an examiner appointed by the Bank is false in any material particular, the person responsible commits an offence and is liable on conviction to a fine of not less than twenty thousand dalasis or imprisonment for a term not exceeding five years.
(b) the prohibition and limitations placed on the operators;
According to 23(1) of the Banking Act 2003, no bank shall directly or indirectly, except with the approval of the Bank on such terms and conditions as the Bank may prescribe –
(a) grant to a person and his or her associated persons an advance or a credit facility or make a guarantee where the total value of the advance, credit facility or guarantee in respect of the person is at any time more than twenty-five per cent of the aggregate amount of the bank's unimpaired capital and the unimpaired balance in its Reserve Account, provided that the limitation on a transaction under this paragraph shall not apply if the transaction –
- is on or with respect to a draft or bill of exchange drawn in good faith against actually existing assets or on banker's acceptances and guarantees or bill of exchange of the kind and maturity prescribed by the Bank or on commercial or business paper actually owned by the person discounting or selling the bill with or to the bank and endorsed without limitation or guaranteed by the person,
-
is a secured asset, fully covered by insurance having an ascertainable market value, or otherwise having value as security as found in good faith by an officer of the bank, of at least fifteen per cent more than the amount of the obligations secured thereby,
- is secured in such other manner as the Bank may deem sufficient in this behalf,
- represents a loan granted by a mortgage to a mortgagor, or
- represents a loan granted to, or a guarantee by the Government, its boards or agencies, or Local Government bodies;
(b) grant an advance against the security of its own shares or more than 10% of value share of any other banking institution;
(c) grant or permit to be outstanding unsecured advances of an aggregate amount in excess of ten thousand dalasis and secured advances in excess of twenty-five per cent
of the banking institution’s capital to -
- any of its directors, officers and other associated persons, whether or not the advances are obtained by them jointly or severally, or
- any person in which it or any one or more of its directors has any
interest as a director, partner, manager, agent, member or otherwise;
(d) engage in trade, except in so far as may be temporarily necessary in the conduct of its
business or to obtain the satisfaction of debts due to it which shall, however, be disposed of as soon as possible thereafter;
(e) acquire any ownership interest in any financial, commercial, agricultural, industrial or other business undertaking except
(i)such interest as it may acquire for the satisfaction of debts due to it which shall, however, be disposed of as soon as possible thereafter;
(ii)for the purchase and sale of shares for trust or upon the order and for the account of a customer where the bank acts only as agent and not as principal in the transaction;
(iii)where the aggregate amount of such investment shall not exceed 10% of the capital and reserves of the bank, unless approved by the bank,
(f) purchase, lease or otherwise acquire real property except as may be necessary for the purpose of conducting its business as a bank, including provision for future expansion, and housing its officers or employees, provided that a bank may secure a debt on any real or other property and in default of repayment may acquire the property for resale as soon as possible thereafter; or
(g) lease or otherwise contract to make available to any person in consideration of periodic payments of rent or other installment payment terms any tangible personal property owned by the bank except in accordance with such conditions and limitations as the Bank may prescribe, provided that this paragraph shall not-
- prevent a bank from lending on the security of any tangible personal property and taking title thereto for that purpose,
- prevent the bank from letting or subletting part of immovable property which is ordinarily used for housing its business where the property is in excess of the immediate requirements of the bank
(2) The total indebtedness of associated persons shall be combined and deemed to be in respect of a single person.
(3) A bank shall not be deemed to have violated paragraph (a) or (c) of subsection (1) by reason only that the combined indebtedness exceeds the limitation at the time the bank became aware of the total indebtedness under subsection (2), but the bank shall dispose of the indebtedness of the group referred to in that subsection, in the amount in excess of the limitation, within such reasonable time as shall be determined by the Bank.
(4) The provisions of subsection (1) (e), (f) and (g) shall not be construed to prohibit the activities of Islamic banks in providing financing to customers through the use of alternative forms of financing that are the functional equivalents of the types of financing traditionally provided by conventional banks.
(c) the level of information to be divulge by a bank during operations;
Section 24.(1) of the Banking Act provides that a banking institution shall send to the Bank, in duplicate –
(a) not later than a period to be determined by the Bank after the last business day of each
month, one or more statements in such form as the Bank may prescribe, showing the assets and liabilities of the banking institution in The Gambia and abroad as at the close of business on the last business day of the preceding month; and
(b) not later than a period to be determined by the Bank after the last day of each quarter ending on 31st March, 30th June, 30th September and 31st December, one or more statements in such form as the Bank may prescribe showing its profit or loss and its assets and liabilities in The Gambia and abroad on the last business day of the quarter.
(2) The Bank may, from time to time, demand any information that it may require, for the purpose of this Act, from -
(a) any banking institution, about its operations and those of its affiliates in The Gambia; or
(b) a local banking institution, about its operations and those of its affiliates abroad,
and the banking institution shall comply within a reasonable time.
(d) the duty of cares of Directors and Officers of a bank ;
Section 34 (1) of the Banking Act provides that every director and officer of a banking institution shall, in exercising the powers and discharging the duties of his or her office –
(a) act honestly and in good faith with a view to securing the best interests of the banking institution; and
(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
(2) A director or officer who contravenes subsection (1) commits an offence and is liable on conviction to a fine of not less than twenty thousand dalasis or imprisonment for a term not exceeding five years and, in addition, he or she shall be removed from the Board or management of the banking institution.
(3) The Bank shall set and enforce standards-
(a) for the corporate governance of banking institutions, including a management structure with clear accountability, and independent board of directors able to provide a check on management, independent audit and compliance functions; and
(b) for internal controls.
(e) the process involved in the liquidation of a bank
A bank must always be liquid to meet depositors’ and creditors’ demands in order to maintain public confidence.
Section 39 provides that where a banking institution decides to initiate a voluntary liquidation, it shall applied for approval to the Central Bank. When a banking institution has received approval of the Bank under section 39, it shall –
(a) Immediately surrender its licence to the Bank, cease to do business and thereafter exercise its powers only to the extent necessary to effect its orderly liquidation;
(b) repay in full its depositors and other creditors; and
(c) wind-up all operations undertaken prior to the receipt of the approval.
Under Section 41 banking institution shall, within fourteen days from the receipt of an approval under section 39, send by registered mail to –
(a) every depositor;
(b) every other creditor of the banking institution; and
(c) a person otherwise entitled to any fund or property held by the banking institution as a trustee, judiciary, lessor of a safe deposit box or bailee, a notice of voluntary winding-up or liquidation of the banking institution setting out such information as the Bank may prescribe.
(2) The banking institution shall display the notice in a conspicuous place in the public part of each place of business of the banking institution and publish it in the Gazette and in a newspaper of general circulation in The Gambia.
Upon the conclusion of the liquidation process, the Central bank shall order that the property of the bank should be returned to its owner after it has satisfy himself that all lawful claims of depositors and creditors has been paid in full and any fund payable to depositor or creditor who has not made a claim is turn over to the bank.
Reference
- Banking Law Act, 2009
- Banking Law Notes, Second Year Second Semester by Mr. Cherno Marenah
- Central Bank Act, 2005
- Financial Institution Act , 2003