Release of funds will improve
- profitability levels,
- Capital Adequacy
Rural Banks in Ghana have exhibited resilie5qnce and continue to stand the test of time and have worked in the interest of their customers and shareholders as per their legitimate mandate as banks operating in our communities and serving critical financial intermediation for a significant number of the Ghanaian populace.
The Bank of Ghana that regulates the subsector of the banking industry has taken a strong stance to ensure that rural banks, as wholly indigenous banks, perform their operations efficiently to bring financial inclusion to members of their communities.
RCBs have not in any instance failed to pay customers their deposits or pay investors their money whenever they fall due; even amid the financial clean-up and in a challenging macroeconomic environment.
Business & Financial Times can confirm that none of the 145 rural banks in the country was closed down or had their licence revoked by the regulator because of insolvency or any corporate governance irregularities, as reportedly happened to some of the universal banks when the banking clean-up occurred recently.
However, a number of rural banks in the country, particularly in the Ashanti Region, have raised serious concerns about their locked-up investment funds of approximately GH¢100million with the National Trust Holdings Company Limited, NTHC.
This situation, according to the banks, has affected their Capital Adequacy Ratio (CAR) and profitability levels, and they would perform far better if their locked-up funds were released to them. Thus, they say when the locked up funds are paid they will be able to give more loans to support farmers, as well as small businesses in their operational territories which the universal banks are usually unable to support. This will eventually improve economic activities in the rural areas and contribute to the well-being of poor citizens and the nation as a whole.
According to directors of these affected rural banks, NTHC – which is a state-owned entity with SSNIT as its majority shareholder – has failed to pay claims that have fallen due since the Security and Exchange Commission, SEC, revoked the licences of some fifty-three fund management companies.
These affected rural and community banks have argued that even though the operating licence of NTHC was not revoked as was done to the others by SEC, NTHC has not been able to pay claims which have fallen due – or better still, refund the principal amount or interests relating to their investments with the state-owned institution.
The rural banks have further argued that the Securities and Exchange Commission (SEC) acted within its mandate of protecting investors and integrity of the market after a successful deliberation with government, authorising a partial bailout of up to fifty thousand Ghana cedis (GH¢50,000) to all customers of the affected Fund Management Companies – but failed to act on the situation with NTHC that is equally directly guilty of the same non-performance.
The decision to make this partial payment was predicated on government’s commitment to protect its citizenry and its sensitivity to the plight of affected clients, compounded by disruptive impacts of the COVID-19 pandemic.
Failed attempts and effects
Several attempts by these affected rural banks to retrieve their locked-up funds from NTHC have yielded no result, and this unfortunate situation has negatively affected their operations in many ways. These include a decrease in income and profitability of the banks as well as falling Capital Adequacy Ratios. Again, these affected banks are unable to lend enough to make sufficient profit to pay dividend to their shareholders.
The Bank of Ghana – sometimes, depending on certain circumstances – compels the affected rural banks to write-off these locked-up funds to clean their books, which results in poor financial performance.
The locked-up investment with NTHC has resulted in liquidity challenges, since such funds are inaccessible and are not making them resourceful enough to withstand financial pressures as banks – with most of them recording worsening Capital Adequacy Ratio (CAR) as well as huge losses or poor profits.
There has also been some level of operational impediment, since RCBs with deficiency in their CAR are not allowed by the BoG to make capital expenditures or embark on projects that could offer enormous benefits to them; thus denying them the opportunity to expand.
According to some directors of the affected RCBs, the excuse given by management of NTHC has been that the government of Ghana owes them several millions of Ghana cedis and efforts are being made to retrieve those moneys from government to enable them pay back clients’ investments.
As noted by the directors, according to NTHC efforts of the latter to retrieve the amount owed them by government, which started over two years ago, have come to nothing.
B&FT’s checks at the NTHC also indicate that most of the rural banks have written to NTHC demanding their locked-up investments; but all that has not yielded any desired results.
There are several exercises being conducted which are supervised by the SEC to prepare for a government’ intervention to pay clients’ investment, hopefully by the end of September.
According to a source at the NTHC, all efforts are being made by management to pay back all claims whichhave fallen due – and possibly migrate certain categories of investments onto mutual funds.
NTHC has also assured these affected clients that their investments will be paid to them and so they must exercise enough patience, as all efforts are being put in place in collaboration with relevant stakeholders to ensure that every client is paid.
Owing to their locked-up funds with NTHC, coupled with the several failed promises by NTHC in the past to pay back the funds, rural banks claim they are unable to wait any longer regardless of further promises still being made by NTHC.
The government of Ghana, on the other hand – being the major shareholder of NTHC, through its state agencies like SSNIT – is now being called upon to do the needful to ensure it settles moneys owed to NTHC, which NTHC claims is making them unable to settle debts owed to these poor and suffering rural and community banks.