RCBs must guard against credit and liquidity risk

The Head of Other Financial Institutions Supervision Department at the Bank of Ghana, Mr. Raymond
Amanfu, has asked stakeholders of the rural banking industry to introduce stringent measures to fight credit risk, which remains a challenge to the operations of rural community banks in the country.

“RCBs need to retrain their credit staff, revise credit underwriting standards and improve collections strategies.” Given the current competitiveness of the banking environment, and the microfinance space, Mr. Amanfu said RCBs needs to be mindful of liquidity risk, and institute liquidity contingency plans to deal with short-term liquidity challenges.

Rural banks’ total assets for the first quarter of the year 2014, according to records from the Central Bank, was said to be GH₵1,864million -- accounting for 3.86% of the total assets of the banking industry compared with 4.71% for 2013, and showing a paltry decline of 0.85%.

“Out of the rural banking total assets of GH₵1,864million, 26 rural banks -- out of a rural banking population of over 139 rural and community banks in the country -- accounted for 50.9%.”

Mr. Raymond Amanfu, who made this pronouncement at a technical assistance programme by JCS Investments Limited and Nwabiagya Rural Bank, said the situation indicates that RCBs are losing ground in total assets of the industry.

He noted that as at March 2014, deposits and credits of RCBs amounted to GH₵1,864.55 million and GH₵716.98million, recording a year on year growth of 13.95% and 12.66% respectively. He added however that the top-26 RCBs controlled 52.5% and 50.8% of the total deposits and credit, posing a concentration risk.

This, he said, requires a conscientious effort and contribution of all the relevant stakeholders, directors, shareholders and management of RCBs to do more to reduce such concentration.

The Bank of Ghana recently reviewed the shared capital required by all rural and community banks as part of an effort to improve the banking industry and environment. It is in line with this that Mr. Amanfu challenged RCBs to strive toward a higher level, as banks with greater capital have the ability to withstand shocks.

By Kizito Cudjoe | B&FT Online | Ghana