21 of 143 rural banks completely safe

Kojo Mattah, CEO, ARB Apex Bank

….but at least 4 fatally distressed

As the Bank of Ghana gears up to address issues of insolvency and undercapitalization in the deposit taking, non-bank financial institutions sector, data from the ARB Apex Bank reveals that as at the end of 2018, only 21 out of the 143 licensed rural and community banks (RCBs) are so sufficiently solvent and well capitalized, that they do not need any regulatory intervention of any sort. These RCBs are rated “strong” which their supervisory institution describes as “sound in all indicators so no supervisory response required.”

However, contrary to widespread fears among the banking public concerning distress levels in that financial intermediation industry segment, the bulk of the RCBs – 105 of them – are rated “satisfactory” by the ARB Apex Bank which means they are “fundamentally sound with modest correctible weaknesses” and so require only limited supervisory responses.

But at the other end of the spectrum there are four RCBs that are so deeply distressed that they are at “high risk of failure” and so need constant supervisory intervention. There are another 11 that are not rated because they did not submit their financial data for the last quarter of 2018, raising suspicion that they too are deeply troubled although their situations have not been confirmed due to dearth of current financial performance data.

In between the best performers and the worst there is another category, rated as fair, containing 20 RCBs as at the end of 2018 and yet another, rated marginal containing 11; both of those categories comprise RCBs with varying degrees of difficulties which however can be overcome albeit with strenuous effort.

As at the end of 2018, 24 of the 133 RCBs that did file their financial performance data on schedule, had failed to meet the GHc1 million minimum capital requirement, even after the extension of the deadline by the BoG. Similarly, 27 of them failed to achieve the minimum capital adequacy ratio of 10 percent. Instructively though the industry average CAR was 16.97 percent which indicated that many RCBs currently have adequate capital.

The 21 banks rated strong are: Mepe Area, Anlo and Weto from the Volta Region; Atwima Kwanwoma, Ahafo Ano, Otuasekan and Odotobri from the Ashanti Region; Microfin, Enyan Denkyira, Bawjiase Area and Odupon Kpehe in the Central Region; Mponve, South Akim, Mwapim, Kwahu Praso, Adonten and Dumpong in the Eastern Region;            Ahantoman, Fiaseman, and Nzema Manle in the Western Region; and Kintampo in the Brong Ahafo Region.

Conversely, the four confirmed as deeply distressed are: North Birim and Fanteakwa in the Eastern Region; Denkyiraman in the Central Region; and Lower Amenfi in the Western Region.

Importantly, while the conventional wisdom is that RCBs financial problems are almost entirely caused by poor lending processes, in actual fact they are suffering largely from their investment of funds in fund management and non-bank finance institutions that themselves have become deeply troubled, such as the McOttley Group which has completely run aground, as well as some of the more hitherto renowned, but now distressed non-bank finance brands.  Indeed in its latest report ARB Apex Bank warns RCBs “to be cautious in their investments with other non-bank finance institutions.”

The report also recommends that “macroeconomic indicators should continuously be considered in taking strategic and operational decisions”; and that “There is still a need to strengthen credit management structures to improve asset quality and ensure adequate classification of risk assets.”

By Toma Imirhe