The Association of Rural Banks, Ghana has held its 22nd Biennial General Meeting, on the theme ‘The role of Rural Banks: Growing Resilient RCBs in the Contemporary Ghanaian Economy’.
The chosen theme was considered very appropriate by the Council of the Association, because the rural banking industry has been prone to negative shocks from the external environment and players in the industry can only withstand these macroeconomic shocks when they remain resilient and robust.
The president-elect of the Association, Kwame Owusu Sekyere Esq., addressing delegates at the just-ended BGM in Koforidua outlined some strategies for growth and resilience.
This, according to him, will help RCBs reflect on how they can perform their financial intermediation role better in a contemporary Ghanaian economy.
Lawyer Owusu Sekyere mentioned that adequate capital will no doubt set the banks on a growth trajectory as it will serve as a strong buffer to cushion RCBs against losses emanating from credit risk and operational risk. More importantly, it can also improve the banks’ capital adequacy ratio, thereby making them more solvent.
According to the Efficiency Monitoring Unit Report of ARB Apex Bank for June 2022, sixty-six RCBs had Capital Adequacy Ratios less than the minimum prudential regulatory benchmark of 10%.
By this, he has highlighted there is a need to embark on an aggressive share mobilisation drive to grow the banks’ capital for resilience – with advice that Directors encourage fellow shareholders they should endeavour to buy additional shares.
Another strategy the president-elect touched on was for banks to have robust internal controls. He mentioned that putting in place strong and robust internal controls is vitally important, as this will help prevent and detect fraud as well as block other income leakages which might affect profitability and growth.
He made reference to the recently published Bank of Ghana 2021 Fraud Report that put a spotlight on RCBs in terms of fraud cases. This, he said, is a very disturbing and worrying trend, as it has poses serious reputational risks to the industry.
He has therefore urged CEOs of all rural and community banks to identify high operational risk areas and strengthen internal control mechanisms, and advised that any staff who perpetuates fraud must be severely dealt with regardless of status to deter others from doing the same.
The last growth strategy he mentioned was for rural and community banks to ensure efficient credit administration.
According to him, lending is a core function of the banking business; and so ensuring efficiency in that area will certainly result in growth.
However, poor credit administration can result in a bad loan portfolio that might lead to impairment of financial assets and erosion of the banks’ net worth as well as Capital Adequacy Ratio (CAR).
He mentioned that to ensure growth and resilience, it is imperative for RCBs to ensure continuous improvement of credit administration; and by so doing non-performing loans will be drastically reduced, thereby improving profitability.
RCBs are poised to improve their resilience and ensure business sustainability so they can play their financial intermediation role effectively to reduce rural poverty, transform businesses of MSMEs as well as support government social intervention programmes in rural communities.
It is therefore hoped that government and policymakers will prioritise the interests of RCBs in its policy formulation and programmes, and recognise rural and community banks as a great economic force to reckon with.
By this, the president-elect has called for government intervention with the payment of their locked-up funds. A number of RCBs are still facing the challenge of locked-up funds with some defunct and existing financial institutions, especially those regulated by the Security and Exchange Commission (SEC).
This has compelled some member-banks to impair fully the principal amount, which has impacted adversely on profitability, net worth and Capital Adequacy Ratio (CAR).
He has therefore appealed to government, the SEC and Ministry of Finance to help RCBs retrieve their funds to improve liquidity, which they can lend to support existing and potential customers in these tough times.
History & Developments
The rural banking journey started in 1976 with the establishment of Nyakrom Rural Bank in the Central Region as the first-born. The policy objective was to promote financial inclusion in rural communities and impact positively on rural economic development and growth.
The sector has impacted significantly on the financial inclusion agenda by making financial services accessible to the marginalised, micro-businesses, and people in the hinterlands among others whose needs are not being adequately served by the universal banks.
The rural banking sector has also been instrumental in promoting rural economic development through corporate social responsibility programmes: such as the construction of health centres, community centres, classroom blocks; granting scholarship to brilliant but needy students; and charity donation among others, with rural bank spending in excess of GH₵1million on corporate social responsibility (CSR) programmes in 2021.
It is significant to mention that the rural banking journey has had its share of operational challenges, especially during the initial stages. Among them were low capitalisation, cumbersome cheque-clearing arrangements through commercial banks, poor technology, poor staffing, payment with mutilated notes and coins by commercial banks, and weak management as a result of RCBs’ inability to attract and retain quality personnel, among others.
The operational challenges as mentioned did not lead the industry to extinction, and they have been surmounted.
Currently, there are 147 RCBs with over 800 branches spread over the 16 regions of Ghana. The industry currently boasts brilliant and well-experienced Directors and CEOs with impressive academic and professional qualifications like their counterparts in the universal banking sector. The forgoing attests to the fact that the rural banking sector has proved to be resilient.
The National Council of ARB is very grateful to the Bank of Ghana, ARB Apex Bank, successive governments and other key stakeholders for supporting RCBs in diverse ways, thereby making it possible for them to stand the test of time.
