How RCBs can avoid loan delinquencies due to the COVID-19 pandemic: My views


Rural and Community Banks are going to face disruptions in their operations, credit quality and risk management in 2020 financial year due to the pandemic that has affected all facets of the banking community.

The Ghanaian business community is feeling the effects of the coronavirus crisis. Due to the uncertainties brought about by the pandemic businesses are already scrambling to find the best support for both their customers and employees. Banks including RCBs are vulnerable to disruption in the business environment. With many institutions shuttering or reducing major operations, putting staff annual leaves or a declaring temporary redundancies Rural and Community banks are bound to be hit hard.

The one aspect of bank operations that would be hardest hit is credit management.  The general economic slowdown occasioned by the COVID-19 pandemic poses a serious threat to RCB credit operations. Where an RCB is unable to effectively help delinquent customers service their debt it would pose operational and economic risks. The following steps can help RCBs best assist their customers during this pandemic with its attendant economic slowdown.

The Customer delight must be supreme

RCB customers especially the small-scale artisans and traders will experience the impact of the pandemic the hardest. Their volumes of trade would reduce which would also affect their income. In the short term, widespread lockdowns and other social curbs may already be preventing them from earning their regular income and curtailing physical interaction with their bank through an abundance of caution. This would affect those servicing loan facilities.

The impact of the virus is also being felt by many businesses who are either reducing staff strength or have closed shop until the pandemic is contained. Some of these employees are also customers of RCBs who receive their salaries from the bank. The loss of salaries would have adverse effect on salary loan deductions too.

At such times, RCBs must to prioritize the welfare of their customers. For those customers in debt or facing delinquency on their borrowing, RCBs can provide short-term relief from loan repayment or longer-term loan rescheduling for those industries such as the hotels and entertainment centers hardest hit by the pandemic.

To mitigate the problem wrought by the pandemic RCB risk management teams must design policies that would ease the pressure of the economic downturn on their customers. This can be done through rescheduling of the loan deductions so they do not default. The BoG has already reduced the provision made on all OLEM loans from 10% to 5% and has added an additional 30 days to loans that could hitherto have been declared OLEM. This is to ease the pressure on the banks but the bank must let this BOG easing cascade unto their clients. This would achieve two objectives: a reduction in the provision made by the banks thus increasing their profits and an easing of loan repayment pressure on the customer. However, while banks would automatically adjust their provisions it is yet to be seen how they would transfer such easing unto their clients.

Recently Republic Bank announced a temporary suspension of loan repayment obligations for all their clients. This was one swoop to ease the pressures on these clients and to position the bank as very customer-centric and those attract more clients to their fold. Rural and Community banks might not be strong enough to follow a similar path but they are strong enough to offer a longer term for their loans and those already disbursed a rescheduling to ease the repayment burden on their clients

Above all, RCBs must increase their outreach and communication with concerned customers. Being empathetic to their customers not only strengthens their relationships but also demonstrates a commitment to customers’ well-being and long-term survival. Customers will welcome such a commitment as reassuring and continue their loyal relationship knowing that The RCBs will always be with them even in times of great crisis like the world is facing.

Employees must be at the center

Many RCBs have introduced new working arrangements in response to the social distancing requirements. Some have put some of their staff on the annual leave in a bid to decongest their offices.  A lot of staff is now home on unplanned leave and may be traumatized.

This is the time management must be more supportive of staff welfare, such as by communicating well with and reassuring staff while encouraging them to stay connected to their offices and colleagues for support. Staff are who are left at post are also likely to be nervous, unsure about how long the arrangement would last or whether the client they are dealing with is safe from the virus or not. Therefore, clear and regular communications with all staff are critical.

Where possible to reduce the exposure of staff at post to risk situations RCBs can consider reducing the business hours. Responsible social distancing should include increasing the physical desk space between employees to at least two meters or where the two meters is not possible spacing the desks enough to make staff comfortable.  and take care to reduce the density of workspaces, deliberately. Staff should be impressed upon to understand that their safety and those of their family and colleagues is of primary concern, and must adhere to the directives to save their banks from avoidable costs.

Take a look at current credit strategy

Due to the uncertainties brought about by the pandemic RCBs should rapidly modify their credit strategy, both to manage exposure and provide effective support to customers threatened by delinquency. After the pandemic is over borrowers may tend to prioritize cash for daily needs and saving over payment of loans. The strain on loan clients’ cash flows will lead to a buildup off loan repayment arrears and increase in loan loss provisions.

Therefore, a proactive RCB credit risk management is important at this time, not only to reduce banks’ risk exposure but also to signal to customers the RCBs readiness to help them manage their distress if any.

Credit Risk management should be able to detect customers showing signs of distress—for example, rapid increases in overdraft balances, reduced deposits, unusual withdrawals, and a sudden or unusual request for short term financing. RCB credit risk managers must not only be concerned about their own portfolio quality but must demonstrate genuine concern for the customers’ credit worthiness and communicate same. Afterall every bank’s future depends on the future of their clients’ businesses.

A new loan recovery strategy involving the use of direct telephone calls, automated nonhuman messaging, can be introduced in place of human outbound day-to-day customer contacts. Automated nonhuman messaging must be done such that they may not be overly intrusive yet effective. RCBs credit risk management must look into linking their client’s loan accounts to their mobile money registered telephone numbers so clients can directly make loan repayment into their accounts without having to come into the bank thus reducing unnecessary human to human contacts.

Another area RCBs must quickly re-strategize is the loan portfolios of their transport operator clients. The pandemic has hit them particularly hard especially drivers who ply the long journeys to Kumasi and Accra. RCBs may have to quickly look at ways to mitigate the losses that may be occasioned due to the inability of these transporters to work. If these operators don’t get some sort of moratorium on their loans, their debt servicing could be severely impacted.


The writer has extensive experience in Rural Banking in Ghana. He is currently the Credit Manager of Lower Pra Rural Bank, Shama and a researcher in current trends in Human Resources Management and Development and Rural Banking. He may be reached on [email protected] Cell: +233 050 636 338

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