Available information has revealed that many rural and community banks in Ghana are operating under highly stressful conditions, while some are financially bleeding heavily, due to mismanagement and failure to adhere to systematic laid down procedures.
Weak boards and management systems in most of them are also resulting in operational losses while weak loan recovery rates, high cost-centres and investments in high risk instruments are driving the Capital Adequacy Ratio of these banks below the 10 percent prudential threshold.
It is observed that some of these rural and community banks have not been able to submit or publish their financial statements over the period while the regulator, ARB Apex Bank, seems unable to save the situation by enforcing the law and sanctioning defaulters, according to Jonathan Cann, a management consultant with JPCANN Associates, in an interview.
According to him “there is that perception that only the universal banks are struggling. The secret is that the rural and community banks are heavily bleeding but this is not being heard because all the attention and focus are on the universal banks. It will be very dangerous and suicidal should that segment of banking be allowed to collapse. It wouldn’t benefit the microeconomic sector.
“There is, therefore, need for stricter measures to be put in place to curb the situation.
The Bank of Ghana (BoG) in 2015 raised the minimum paid-up capital requirement of all rural and community banks from GHS300,000 to GHS1million.
All the 141 rural and community banks were expected to raise their paid-up capital to GHS500,000 by December 2016 and GHS1million by December 2017.
As at January 2018 less than 100 of them had met and exceeded the GHS1million paid-up-capital threshold.
Majority have not complied with the 10 percent minimum capital adequacy ratio requirement as stated in Section 29 (2) of the Banks and Specialized Deposit-Taking Institutions Act 2016, (Act 930). This indicates that non-compliant institutions have insufficient funds to absorb unanticipated losses, and therefore the safety of customers’ deposits is risked.
In the era before the late 1970s, rural dwellers in Ghana had almost no access to institutional credit; and in many rural communities, secure, safe, and convenient savings and payment facilities hardly existed.
In response to this situation, the government, together with BoG, took several measures to increase access to credit in rural areas, including facilitating the establishment of rural and community banks.
Rural banks have not only played an important role in the development of the financial services sector but have also contributed meaningfully to the lives of people in various communities in terms of education, health, security, employment and business, among others, in their catchment areas across the country.
By Adu Koranteng