(i) Critical Examination of the Effectiveness of Daily Bank Plc’s Business Model (35 marks)

The business model of Daily Bank Plc (Sikaman), as a subsidiary reliant on agricultural and primary exports for foreign exchange earnings, exhibits several strengths but also significant vulnerabilities, particularly in the context of the provided financial performance and external factors. Effectiveness can be assessed through key dimensions such as sustainability, adaptability to market conditions, risk management integration, and alignment with regulatory expectations under the Bank of Ghana’s (BoG) frameworks, including the Corporate Governance Directive 2018 and the Liquidity Risk Management Guidelines.

• Strengths in Core Operations: The bank’s profit for the period in September 2022 stood at GHS 280,000 (in ‘000s), only a modest decline from GHS 300,000 in 2021, indicating relative stability in core banking activities like lending and deposit-taking. This suggests the business model’s focus on agricultural financing may still generate consistent operational income, leveraging Sikaman’s export-dependent economy. For instance, similar to GCB Bank’s historical emphasis on cocoa financing in Ghana, this model supports economic growth by providing credit to primary sectors, aligning with BoG’s objectives for enhancing economic growth through banking (as per the Banks and Specialised Deposit-Taking Institutions Act, 2016 – Act 930).
• Vulnerabilities in Investment and Market Exposure: However, the sharp drop in total comprehensive income from GHS 340,200 in 2021 to GHS 50,000 in 2022 highlights ineffectiveness. This is driven by a GHS 200,000 negative change in fair value of FVOCI assets (likely bonds or securities), compared to a GHS 40,000 gain previously, and a minor expected credit loss of GHS 300. The scenario points to illiquidity in the bond market and a missed opportunity due to delayed exit instructions from the group. In Ghana’s context, post-2022 Domestic Debt Exchange Programme (DDEP), banks like Ecobank Ghana faced similar mark-to-market losses on government securities, eroding comprehensive income. This indicates the model’s over-reliance on volatile investments without adequate hedging, contravening BoG’s Capital Requirements Directive (CRD) which mandates stress testing for market risks.
• Lack of Strategic Adaptability and Accountability: The board’s failure to proactively shift resource allocation, relying on group prompts, underscores a reactive rather than proactive model. In an export-dependent economy prone to global shocks (e.g., commodity price fluctuations or political risks in Sikaman, akin to Ghana’s 2017-2019 banking cleanup due to non-performing agricultural loans), this delays response to illiquidity. The accountability challenge at board level, as noted, mirrors real cases like UT Bank’s collapse in 2017, where poor governance led to liquidity crises. The model is ineffective in integrating environmental and political risks, as the chairman questions, potentially violating Basel III-adapted principles in Ghana for risk appetite setting.
• Alignment with Stakeholder Expectations: While approved at the AGM, the model’s effectiveness is questioned by current performance, suggesting misalignment with shareholder value maximization under the shareholder model of governance. In practice, banks like Stanbic Bank Ghana have diversified into fintech and non-traditional sectors post-DDEP for resilience, a step Daily Bank missed, leading to potential systemic risks as warned in BoG’s Sustainable Banking Principles.

Overall, the business model is partially effective in core profitability but ineffective in risk diversification and adaptability, risking BoG sanctions for non-compliance with disclosure and capital adequacy under IFRS and Notice No. BG/GOV/SEC/2023/05 on recapitalization. To enhance, the bank should diversify revenue streams, e.g., into digital banking under the Payment Systems and Services Act, 2019 (Act 987), for long-term resilience.

(ii) FIVE Key Corporate Governance Mechanisms for Future Effectiveness (15 marks)

To address the identified gaps, the Board should introduce the following key mechanisms, grounded in BoG’s Corporate Governance Directive 2018 and global best practices like the King IV Report:

1. Robust Risk Management Framework: Establish a comprehensive Enterprise-Wide Risk Management (EWRM) system with regular stress testing and key risk indicators (KRIs) for market and liquidity risks. This would prevent missed opportunities like the bond exit, as seen in Access Bank Ghana’s post-cleanup reforms.
2. Enhanced Board Composition and Independence: Ensure a mix of independent non-executive directors with expertise in finance and agriculture, limiting duality (e.g., no CEO-Chair combine) to foster proactive decision-making, aligning with Act 930’s fit-and-proper criteria.
3. Audit and Compliance Oversight: Strengthen the Audit Committee’s role in reviewing financial disclosures and compliance with IFRS, including voluntary ESG reporting, to minimize losses from FVOCI volatility, similar to mandatory audits post-2019 cleanup.
4. Performance Measurement and Accountability: Implement board evaluations and KPIs tied to strategic goals, with clawback provisions on executive remuneration for poor decisions, addressing the accountability challenge per BoG’s guidelines.
5. Stakeholder Engagement and Disclosure: Adopt a stakeholder model with regular AGM updates and transparent reporting on risks, enhancing trust and preventing systemic failures, as emphasized in BoG’s Cyber and Information Security Directive 2020 for broader governance.