The Effect of Enterprise Risk Governance on the Financial Performance of Ghanaian Commercial Banks

In an attempt to ensure that banks in Ghana are strong and safe from any risk inherent in their operational activities, the Bank of Ghana (BoG) recently embarked on a massive revamping of the financial services sector. According to financial experts, this could be a result of weak enterprise risk governance practices. However, studies in Ghana ascertaining the implications of enterprise risk governance indicators on bank performance have received little attention in the literature. This study is therefore aimed at examining the implications of Risk Management Committees (RMCs), independent RMCs, Risk Management Officers (RMO), and overall Risk Index (RI) on bank performance. The dynamic System GMM was employed for the analysis of the enterprise risk governance-bank performance relationship. Panel data from the annual reports of 14 banks spanning the period of 10 years from 2013-2022 was employed. The results suggest that the existence of RMCs sees to a better asset performance of banks. However, independent RMCs provide rigorous governance frameworks which tend to reduce excessive risk-taking behavior by banks which adversely affects bank performance. Further, RMOs present on the executive board are found to be stronger and have a powerful influence to be rigid against riskier investment projects adopted by banks during economic growth, which acts against performance of banks. Finally, banks tend to perform better when they take on riskier investment projects. This study is an attempt to certify independent RMCs, the presence of an RMO on banks’ boards, and vigilance when undertaking riskier investments with respect to emerging economies like Ghana.