Financial Sector Weaknesses
Before FINSAC implemented its strategic workplan, a comprehensive list of the weaknesses that characterized distressed institutions was drawn up. This was done in order to assist FINSAC in negotiating intervention and rehabilitation agreements. The weaknesses identified included:
- Poor management generally
- Inappropriate organizational structures
- Poor strategic planning
- Under-capitalization of institutions, and of subsidiaries involved in real estate
- Inadequate credit and investment assessment and monitoring
- Excessive credit concentration
- Inadequate portfolio diversification
- Over-exposure to real estate lending or acquisition
- High levels of non-performing assets
- Mismatch of assets and liabilities’ maturity dates
- Excessive related party exposure including inappropriate connected lending
- Non-compliance with internal control procedures
- Non-compliance with effective risk management principles
- Frequent actions solely in the interest of major shareholders and/or their associates
- Inadequate supervision of management by Boards of Directors
- Failure of regulatory bodies to insist on compliance with accepted rules and standards
- High operating costs including excessive inappropriate compensation packages
- Diversification by banks and insurance companies
away from core business leading to:
- Potentially profitable businesses being managed by unskilled personnel
- Poor and biased credit decisions made at less than arm’s length
- Non-core businesses with inadequate capital structures relying on high-interest loans.
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