Ghana's rural banking sector is stable – BoG

Recent data from the Bank of Ghana have suggested that the rural banking sector is stable and significant progress has been made to improve the financial performance.

As at July 2019, 114 rural banks had met the paid up capital of GH¢1million, thirteen rural banks recorded varied paid-up capital ranging from GH¢500,000 to GH¢1million, while seventeen showed paid-up capital below GH¢500,000.

The Bank of Ghana First Deputy Governor, Dr. Maxwell Opoku-Afari, disclosed these and more at the 7th National Rural Banking Week Celebration climax last Saturday in Takoradi, on the theme ‘The role of Rural and Community Banks (RCBs) in Financial Inclusion’.

According to him, the average Capital Adequacy Ratio of rural banks as at end July 2019 was 13.9 percent, which is far above the 10 percent threshold. Also, 130 rural banks – that is, about 90.3 percent of the total number of rural banks (144) – had complied with the minimum primary reserve requirement of 8 percent with average primary reserves of 18.2 percent.

Non-Performing Loans (NPLs) of Rural and Community Banks improved marginally over the period under review, to 11.8 percent from 12.5 percent at the end of July 2019.

In spite of the rural banking sector’s good performance, the regulator is very much aware of challenges facing the sector and its unique role in rural communities. It is for this reason that the Bank of Ghana decided not to include the rural and community banks segment of the financial sector in the reform process that began in 2017, because its role is critical to the financial inclusion agenda of government.

The First Deputy Governor has however emphasized that any rural bank that wishes to deploy resources toward the financial inclusion drive must be strong, liquid and well-capitalized.

“It is unfortunate that our assessment over the years is almost reflective of what happened in the banking and SDIs sectors. A number of RCBs are faced with serious regulatory and supervisory concerns: such as low capital adequacy ratios, regulatory violations, weak lending and risk management practices, and weak corporate governance systems which have rendered them distressed,” he stressed.

Considering rural banks’ critical role in the financial inclusion agenda, particularly in rural communities, the Bank of Ghana is working together with the Ministry of Finance and ARB Apex Bank to implement a reform plan that seeks to address current challenges facing the rural and community banks. The Bank of Ghana is also working closely with the Association of Rural Banks to tighten supervision and regulatory compliance, including meeting the minimum capital requirement to address non-performing loans.

The Bank of Ghana has extended the deadline for meeting the minimum paid-up capital to February 2020, and all RCBs have been entreated to put measures in place to comply with the deadline directive so as to build stronger and more resilient rural banks.

The First Deputy Governor has further disclosed that receivership is currently ongoing for the MFIs and Savings and Loans and finance houses whose licences were withdrawn.

He said after the slow start due to poor records and documentation, validation has been increased significantly – with a lot of depositors having received payment of their locked-up funds.

Furthermore, he said, government took a decision to increase the cap on pay-outs from GH¢10,000 to GH¢20,000 – which will cater for about 98 percent of depositors. However, he observed that the BoG is aware of the number of large institutional depositors, including rural banks, which have their funds beyond GH¢20,000 locked up.

He therefore announced that an understanding has been reached between the Ministry of Finance, BoG and the Receiver to find a way to unlock those funds. Discussions on modalities, he said, are ongoing and will be announced once a conclusion is reached. The BoG, he emphasized, will however continue to tighten regulation, ensure stricter supervision and enforcement of prudential and statutory requirements to safeguard financial stability and protect depositors.

“The implementation of these will ensure that RCBs remain strong and able to deliver effective financial intermediation leading to financial inclusiveness, social transformation and poverty alleviation in rural communities,” he said.