How strong are rural banks?


Rural banks play a crucial role when it comes to promoting efficient rural financial intermediation. Rural banks have promoted financial inclusion among the unbanked such as petty-traders, artisans among others through microfinance products.

Again, scores of rural banks have helped a number of SME operators in rural and urban areas to grow and expand their business through access to loan facilities. Aside from providing rural financial intermediation, some rural banks have been contributing to developmental activities in their catchment areas – thereby complementing government’s efforts in addressing developmental challenges in rural areas. For example, Atwima Kwanwoma Rural Bank has established a Senior High School for Pakyi No. 2 Community, where its head office is located

According to the Efficiency Monitoring Unit of ARB Apex Bank Report for December 2017, there were 141 rural banks operating across the country. According to the report, Gomoa Ajumako, Eastern Gomoa and Gomoa in the Central Region merged into one bank as Gomoa Community Bank.

The total assets of the RCBs industry stood at 3,602.55 billion cedis at the end of December, 2017.

The advances at the same period stood at 1,278.93 billion cedis, while total deposits amounted to 2,847.53 billion cedis.

The Efficiency Monitoring Unit of ARB Apex Bank Report for the last quarter of 2017 rated 29 rural banks as strong. The vast majority of RCBs were rated as satisfactory. The rating is based on certain key performance indicators. The rating revealed that most of the RCBs are doing well.

Among the rural banks rated as strong were the Ahafo Ano, Ahantaman, South Akim, Anlo, Atwima Kwanwoma, Fiaseman, Sefwiman, Amenfiman, Manya Krobo, Otuasekan rural banks among others. It is heartwarming to say 28 rural banks were part of the 16th edition of prestigious Ghana Club 100 awards organised by GIPC in 2017. The Ghana Club 100 (GC100) is an annual compilation of the top-100 companies in Ghana.

The performance of RCBs in Club 100 is an indication that increasingly rural banks are improving.

Like other industries, the rural banking industry has its own challenges. However, generally, the industry is strong and this article will examine certain key financial soundness indicators such as capital Adequacy Ratio, Liquidity and Profitability to buttress the point. This article will also examine some players in the rural banking industry which are performing exceedingly well.


Financial Soundness Indicators

  1. Capital adequacy Ratio (CAR)

Capital adequacy ratio is one of the key financial soundness indicators of banks. The current prudential limit set by the Bank of Ghana is 10%. According to the Efficiency Monitoring Unit Report by the ARB Apex Bank Ltd. for the 4th quarter of 2017, the rural banking industry recorded an average CAR of 17.77% at the end of December 2017. This was higher than the regulatory benchmark of 10%. This is an indication that the rural banking industry as a whole is solvent and strong.

The capital adequacy ratio is a key indicator of the solvency of a bank and measures a bank’s capital in relation to its risk-weighted assets (LIoyd Evans). In other words, CAR is expressed as a ratio of a bank’s capital as a percentage of risk-weighted assets (Adjusted Capital base as a percentage of Adjusted Assets Base). Scores of rural banks have capital adequacy ratios which far exceed the prudential benchmark of 10%. Here are examples:


Name of rural bank            Capital Adequacy Ratio for March, 2018

Juaben                                    22%

Manya Krobo                         20.85%

Kintampo                               32% (April)

Atwima Kwanwoma              45%

Fiaseman                                20.75%

  1. Profitability

The rural banking industry is constrained by certain factors that limit the players’ ability to make more profit. For example, most rural banks have their branches in rural communities where economic activities are low, and this hinders their ability to mobilise more deposits to trade with.

Unlike the major banks in which target market are predominantly corporate entities and high net worth individuals, the target market of RCBs consist of microfinance clients, salary workers, SMEs and other customers at the bottom of the pyramid. The major banks have various sources of income apart from interest income on loans and investment income. For example, commercial banks generate more income from off-balance-sheet activities.

Again, rural banks have limited capital; and as such they are unable to finance big-ticket transactions which have the potential to generate high income.

Nevertheless, scores of rural banks are doing their best to maximise profit.

According to the Efficiency Monitoring Unit of ARB Apex Bank Report for the last quarter of 2017, the industry recorded profit before tax of GH¢105.65million. Specifically, some individual RCBs performed extremely well in terms of profitability. Here are a few examples:

Name of rural bank Profit before tax for 2017

Atwima Kwanwoma  GH¢ 8,296,648

Amenfiman                GH¢8,225,821

Fiaseman                    GH¢5,424,991

Nwabiagya                 GH¢4,706,149

Manya Krobo             GH¢3,139.271

Ahantaman                over GH¢4million


  1. Liquidity


Liquidity has been described as the life-blood of banks, and hence is one of the key financial soundness indicators.

Liquidity is the ability of a bank to meet its financial obligations as they fall due for payment. Customers expect to have access to their funds when they visit the banking hall.

Therefore, liquidity challenges which make it difficult for customers to access their funds will result in loss of confidence and trust. In an extreme situation, it can lead to a bank-run. In fact, liquidity risk can result in the demise of a rural bank.

According to the ARB Apex Bank report for the last quarter of 2017, the industry liquid assets to total assets was 50.52% – which is above the benchmark of 40%. This shows that the industry in general is liquid.


From the discussion so far, it can be concluded that the rural banks industry as a whole is doing well in terms of certain key financial soundness indicators. Also, some key players in the industry – especially the top-30 – are doing extremely well.

Government should therefore support rural banks to grow in order to deepen rural financial intermediation.  The Bank of Ghana (BoG)and ARB Apex Bank should also strengthen their supervisory role with respect to the RCBs, in order to promote strong, stable and resilient micro-economic growth in rural areas and the nation as a whole.


The Author is the Head of Proven Trusted Solutions, an employee-training and development and marketing research firm.

Contact: 0207725859 / 0244517833

Email: [email protected] / [email protected]

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