Abstract:
The 2007-2008 global financial crisis (GFC) exposed the shortcomings and inefficiencies of the global banking system, and these weaknesses were not limited to only one country or economy. In addition, the financial crisis shook the faith of governments and investors in banking systems across the globe; this faith has yet to be restored.
To address the problems in the global banking system, the Basel Committee on Banking Supervision (BCBS) published the Basel III regulatory framework (Basel III) to improve the resilience of banks and enhance the financial stability and sustainability of the global financial system. Research furthermore confirmed that banks’ ineffective operational risk management practices were one of the principal causes of the 2007-2008 GFC. However, the Basel III operational risk management requirements were primarily designed for internationally active banks and add considerable complexity to banks’ operations, making it exceptionally challenging for them to comply with its requirements, particularly for banks operating in developing African countries.
However, the Ghanaian banking sector, experienced another banking crisis in 2018 and has since been focused on implementing the requirements of Basel II. Unfortunately, Ghanaian banks find implementing the Basel III operational risk management requirements challenging because of its complexity, high compliance cost, poor supervisory guidance, cultural issues, poor risk governance, and a lack of human resources. Therefore, this study was to assist Ghanaian banks in improving their operational risk management practices and increasing their level of compliance with the operational risk management requirements of Basel III and consequently experience improvements in their risk resilience, financial stability and sustainability.
The empirical analyses were based on survey data collected through a self-designed questionnaire distributed among Ghanaian bank personnel with specialised knowledge and experience in operational risk management, risk governance and compliance, bank supervision and implementing the Basel regulatory frameworks. The data analyses included descriptive- and inferential statistical techniques, by means of the Mann-Whitney U test, Fisher’s exact test and multiple regression analysis. The findings indicated that Ghanaian banks could enhance their level of operational risk management compliance by improving their risk governance and risk culture infrastructures, as these key improvements will increase the optimal functioning of their operational risk management practices. By implementing the guidelines provided by the study, Ghanaian banks will enhance their level of compliance with the Basel III regulatory framework and therefore also experience improvements in the financial stability and sustainability of the country’s banks.
