Joseph Akossey’s thoughts … Are rural banks well-positioned to weather the storm of COVID-19?


Rural and Community Banks play a pivotal role in the Ghanaian financial landscape by extending financial services to the deprived, under-served and the unserved segments in various communities, thereby deepening financial inclusion.

They also provide financial services directed at market segments such as Micro, Small and Medium Enterprises (MSMEs), government workers among others.

Besides undertaking financial intermediation, the RCBs have been contributing significantly to economic growth, poverty alleviation and job creation in their catchment areas – and by extension, Ghana.

Currently, there are 144 rural and community banks (RCBs) spread across the 16 regions of Ghana. According to data from the ARB Apex Bank Limited, the rural banking sub-sector has the largest branch network with the largest retail customer base of over 6.5 million.

According to the Bank of Ghana Annual Report for 2019, the rural banking sector “recorded total assets of GH₵4.69billion as at the end of December 2019, reflecting an increase of GH₵550million over the end of December 2018’s position”.

The COVID-19 pandemic is currently exacting a heavy toll on individuals, households, businesses, financial institutions among others. In order to mitigate adverse impacts of COVID-19 on the Ghanaian economy, the Bank of Ghana has introduced certain measures to support Banks and Specialised Deposit-Taking Institutions so they will be in a better position to support businesses and other critical sectors of the economy.

Here are some of the relief measures: reduction in prudential limit of Capital Adequacy Ratio from 13% to 11.5% (Universal Banks only); reduction in provision for loans in the OLEM category from 10% to 5%; classification of loan repayment past due for SDIs for up to 30 days as current; reduction of primary reserve ratio from 8% to 6% for S & Ls, FHs and RCBs.

It is significant to note that the full effects and duration of COVID-19 are still unknowns, despite the easing of restrictions by some governments.

The question therefore arises as to whether rural and community banks are well-positioned to weather the storm of COVID-19. This article is meant to provide you with the answers.

Before I discuss the main article, I would like to congratulate the Board and Management of Ahantaman Rural Bank under the leadership of Mr. Afful-Eshun, who is the CEO, for making the bank a resilient and appealing brand. It is worth mentioning that the bank’s key performance indicators have improved significantly for the half-year of 2020 despite the COVID-19 crisis. Once again, I say kudos to Mr.  Benjamin Afful-Eshun.

In similar vein, I would like to congratulate the Board and Management of South Akim Rural Bank in the Eastern Region for their hard work in making the bank one of the leading and most resilient brands in the rural banking industry.

Now, let’s consider the question as to whether rural and community banks are well-positioned to weather the storm of COVID-19.

Broadly, the answer is a simple “yes”. In other words, the industry as a whole is well-positioned to weather the storm. Why? The financial soundness indicators usually used by banking regulators across the world support this answer.


The financial soundness indicators to be discussed are the Capital Adequacy Ratio and Liquidity.

Capital Adequacy Ratio

Capital Adequacy Ratio is one of the key financial soundness indicators of banks. It measures the solvency of Banks and Specialised Deposit-Taking Institutions such as the RCBs.

The Capital Adequacy Ratio is measured as a percentage of a bank capital to its assets. In other words, it is computed by using a bank adjusted capital base as a percentage of Adjusted Asset Base.

The Capital Adequacy Ratio is of paramount importance because it influences the future outlook of financial institutions. The Bank of Ghana revoked licences from 9 universal banks, 23 savings and loans (S&Ls) and Finance Houses (FHs) and 347 Microfinance Institutions because most of them were insolvent.

According to the Bank of Ghana Report for 2019, the Capital Adequacy Ratio (CAR) of RCBs improved to 12.7% at end-December 2019 from 10.5% at end-December 2018, which was above the prudential threshold of 10% (Source: Bank Of Ghana Website). This is remarkable, because the sector was hit by the spill-over effects of the banking sector clean-up, locked-up funds with some defunct financial institutions, and malicious messages that circulated on social media platforms purportedly meant to discredit the industry.

This also means that the CAR could have been higher had it not been the factors mentioned above. Based on the analysis, it can therefore be argued that the rural banking sector as a whole is solvent and well-positioned to weather the storm of COVID-19. It is important to say that a number of RCBs have Capital Adequacy Ratio far above the industry average.

For example, Atwima Kwanwoma Rural Bank Limited in Ashanti Region had a Capital Adequacy Ratio of 43.92% as of April 2020. This shows that the bank is resilient, robust, highly solvent and liquid to weather the storm of COVID-19. It will interest you to know that the bank is biggest in the industry in terms of net worth. It recorded a net worth of over GH₵41million as of April 2020.

Otuasekan Rural Bank is also doing well in terms of capital adequacy ratio. Its capital adequacy ratio as at April 2020 was 24.1%, which is higher than the minimum regulatory benchmark of 10%.


Liquidity has been described as the lifeblood of Banks and Specialised Deposit-Taking Institutions. Therefore, it has become one of the key financial soundness indicators used by regulators and key stakeholders to measure the resilience of banks.

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 baking hall. Therefore, liquidity challenges which make it difficult for customers to access their funds could result in loss of confidence and trust. In an extreme situation, it can lead to panic withdrawals and bank runs. Liquidity risk can result in the collapse of a rural bank.

It has been argued that financial institutions with strong liquidity without profitability can survive for a while, but not without cash. This underscores the importance of adequate liquidity in the banking business. It is also important to note that a financial institution can be profitable and yet lack liquidity. Why? The reason is that profit is not always cash. There is a saying in banking, that “it is better to err on the side of cash rather than the side of profit”. This implies that cash is key in banking.

The liquidity of banks and specialised deposit-taking institutions can be measured by using parameters such as liquid assets to total deposits, liquid assets to total assets ratio, and liquidity reserve requirement.

According to the ARB Apex Bank quarter-four report for 2019, the industry liquid assets to total assets was 53.25% – which was above the benchmark of 40%. This shows that the industry in general is liquid, and as such can weather the storm of COVID-19.

In order to improve liquidity so as to reduce liquidity risk, rural banks are required by law to comply with statutory liquidity reserve requirement. This consists of primary reserve ratio of 6% of total deposits (cash and bank balances with other banks); 5% placement with ARB Apex Bank (5% Apex Reserve Requirement); and secondary reserve ratio of 30% of total deposits in the form of short-term investment in government securities, especially Treasury bills and investment in Fund Management companies.

Currently, some RCBs have in excess of the minimum primary reserve ratio and secondary reserve ratio. This no doubt improves the liquidity of those banks and puts them on a good trajectory to meet depositors’ withdrawal demands, thereby building public confidence.

The Bank of Ghana recently announced in its press release dated May 16, 2020 that it will strengthen the capacity of the ARB Apex Bank to provide liquidity support for RCBs facing temporary liquidity challenges. This will also promote stability and soundness in the rural banking subsector.


Given that RCBs have been impacting on the lives of poor households, low-income earners and the most vulnerable and unreachable in their catchment areas, government should therefore give them the necessary support to thrive. The RCBs should also avoid complacency, and instead work hard to improve their key performance indicators and also contribute to the real sectors in the rural economy.

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