BoG to get tough on rural banks as paid-up capital requirement deadline draws near

BoG to get tough on rural banks as paid-up capital requirement deadline draws near
Source: B&FT
Date: 06-11-2017 Time: 07:11:07:am

The Bank of Ghana in 2015 raised the minimum paid-up capital requirement of all rural and community banks in Ghana from GH¢300,000 to GH¢1million.

All the 141 rural and community banks were expected to raise their paid-up capital to GH¢500,000 by December 2016 and GH¢1million by December 2017.

As at June 2017, out of the 141 rural banks in Ghana 51 had met and exceeded the GH¢1million   threshold paid-up-capital; 51 RCBs also had paid-up capital ranging from GH¢500,000 to GH¢950,000 and the remaining 39 RCBs’ paid up-capital ranged from GH¢137,000 to GH¢464,000.

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Mr. Kofi Amoa-Awuah, Head of the Other Financial Institutions Supervision Department, OFISD, Bank of Ghana, in a speech delivered on his behalf by Mr. Yaw Akomgong at the 16th National Managers’ Conference of the Rural and Community Banks held recently in Ho, reminded the industry of the approaching deadline.

Mr. Kofi Amoa- Awuah, who raised other regulatory concerns, mentioned weak credit risk management culminating in high NPLs as a result of poor appraisal of credits, lack of monitoring and weak recovery systems.

According to him, some rural banks – especially those with BoG’s composite ratings of ‘critical’ and ‘unsatisfactory’, continue to violate the 8% Primary Reserve Requirements.

The RCBs, he said, must, therefore, ensure that they are liquid at all times so as to inspire confidence in the public.

The Bank of Ghana official also warned against the continuous investment in unprofitable subsidiaries and fixed assets, which has serious implications for liquidity.

Besides, he said, many RCBs also do not comply with the 10% minimum capital adequacy ratio requirement as stated in Section 29 (2) of the Banks and Specialised Deposit-Taking Institutions Act 2016, (Act 930). This indicates that non-compliant institutions have insufficient funds to absorb unanticipated losses, and therefore the safety of customers’ deposits is jeopardised.

He further mentioned that weak boards and management usually result in operational losses, weak loan recoveries and high cost-centres, and investments in high-risk institutions – all of which drive the CAR below the 10% prudential threshold.

Dynamic and well-functioning economies depend on widely-accepted forms of banking to improve the standard of living for their citizenry and support growth of enterprises. In the era before the late 1970s, rural dwellers in Ghana had almost no access to institutional credit; and in many rural communities, secure, safe, and convenient savings and payment facilities hardly existed.

In response to this situation, the government of Ghana, together with the Bank of Ghana, took several measures to increase access to credit in rural areas, including facilitating the establishment of Rural and Community Banks (RCBs).  

Rural Banks have not only played an important role in the development of the financial services sector of Ghana economy, but have also contributed meaningfully to the lives of people in various communities in terms of education, health, security, employment, business among others, in their catchment areas across the country.

Meanwhile, Mr. Simon Nero Davor, Volta Chapter President of the Association of Rural Banks (ARB), has appealed to the Bank of Ghana (BoG) to soften its stance and be considerate in imposing penalties on rural and community banks.

According to him, if the penalties being imposed are not paid, it could lead to the collapse of rural banks with social impacts on rural economies.

He mentioned that a good number of rural and community banks are facing challenges and urged the BoG to devise means of reviving such banks instead of closing them down, which could cause loss of customers’ deposits, as well as loss of jobs and rural enterprises.

Another major challenge facing RCBs, Mr. Davor said, is managers giving loans to themselves – either personally or through third parties – and cautioned them to desist from the practice.

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