The Bank of Ghana (BoG) is using the ARB Apex Bank to resuscitate some 30 rural and community banks (RCBs) from imminent collapse after their operations and finances were weakened by continuous poor corporate governance, mismanagement and thin capitalisation.
As of June, this year, another 14 of the 30 banks classified as “marginal or weak banks” had failed to comply with BoG’s directive on minimum capital, which required that all RCBs recapitalised to GH¢300,000 by December, 2015.
Although the rest of the 16 have met the minimum capital requirement, almost all the funds are made up of debts.
The dire nature of the capital base of these 30 banks was revealed after periodic assessments by the Apex Bank, which has oversight supervision over the operations of the 139 RCBs nationwide.
The Graphic Business has learnt that out of the 30 banks, six of them have stopped filing reports on their operations to the Apex Bank, contrary to BoG’s requirements for all financial institutions to give periodic updates on their activities to the regulator.
The development raises questions over the viability of the six RCBs, with portentious implications for their stakeholders.
The deputy Managing Director of Apex Bank, Mr Alex Kwasi Awuah, explained in an interview that his outfit had subsequently classified the affected banks into the categort of marginal banks that required support to be able to stand.
“These (the 30 RCBs) are banks we refer to as marginal banks; banks whose financial information show that they are weak and need to be supported else they cannot meet the minimum capital or risk collapsing,” Mr Awuah said.
But instead of bailing them out individually, the central bank, through the Apex Bank, is encouraging the affected banks to merge or be acquired by stronger counterparts.
The Head of Other Financial Institutions Supervision Department, Mr J. Kofi Amoa-Awuah, said in a separate interview that the choice of and subsequent push for mergers over individual bailouts was to help prevent a repeat of the situation where bailout banks normally relapsed into challenges after their boards and management had mismanaged the fresh capital injection.
“What we have realised is that when you bail them out on individual basis, they still cannot stand on their own because the monies are always squandered. But when you merge them, their capital becomes big and they become stronger, Mr Amoa-Awuah told the paper on September 6.
So far, the Apex Bank is already bailing out some five of the RCBs in the Central and Greater Accra regions, with fresh capital, good governance guidelines and operational efficiency technical support.
As a result of the successful bailouts, the minimum paid-up capital of five beneficiary RCBs averaged GH¢3.2 million, with that of the Shai Rural Bank, one of the beneficiaries, rising to GH¢4.7 million as of June 2016.
This compares favourable to the rest of the RCBs, whose minimum capitals averaged GH¢350,000 within the same period.
Apex Bank’s push for mergers has been ongoing over the past three years.
Within the period, the bank has succeeded in getting three of weaker banks in the Central Region to merge into the now Gomoa Community Bank, with seven others in the Western Region being processed for subsequent mergers later in the year.
Another two in the Brong Ahafo Region are also being prepared for similar mergers, according to Mr Amoh-Awuah, who said the mergers were an option rather than mandatory.
“What the ARB Apex Bank does with the mergers is like moral suasion; they are not imposing it on the banks.”
“They go there, tell the board the situation they are in (making losses) and give them the option of a merger; it’s like lobbying and it is not compulsory although we wish they all buy into the idea,” he said.
Quality of manpower
The impact of rural banks in the banking has witnessed tremendous growth over the past 10 years.
Since the introduction of the first RCB in 1976, the number has risen to 50 in the 1980s before increasing to 139 as of June.
Beyond the numbers, the total assets of the RCBs has also grown, rising from GH¢220,000 in 2005 to GH¢2.6 billion in December 2015.
The total assets of the RCBs of last year amounted 3.4 per cent of the banking sector.
Despite the strong growth in RCBs, BoG’s Head of Other Financial Institutions Supervision Department noted that the issue of quality manpower still remained a challenge, as majority of the inefficiencies in the sector could be traced to lack of competent human resources to effectively manage their operations.
“Most of the challenges these 30 banks face is as a result of corporate governance issues. Because of the rural setting, many people are not attracted stay there and that is having an effect.
“Some of their directors are also there because of local politics although some cannot even appreciate a common balance sheet,” he said, citing situations where some local people have paid their ways onto the boards.