With barely three months left to the expiration of the Bank of Ghana’s extended deadline of end of February 2020 given to rural and community banks (RCBs) to recapitalize to a minimum of GHc1 million or lose their licenses, most of the industry has met the new minimum capital requirement.
First Deputy Governor of the Bank of Ghana, Dr Maxwell Opoku-Afari disclosed in Takoradi last week that as the end of July, 114 of the licensed RCBs had achieved paid up capital of at least GHc1 million. This leaves just 30 RCBs below the new minimum capital, and nearly half of these are at least half way there. According to Dr Afari, 13 of them had raised paid up capital of GHc500, 000 or more, but still were short of the statutory new minimum. Nevertheless, this puts them within grasp of the new minimum.
However, there are 17 RCBs with core capital of less than GHc500,000 and with the deadline rapidly approaching this could prove problematic. The BoG s is reluctant to engage in mass license revocations in the RCB sector like it did with the other genres of financial intermediaries because of their crucial role in facilitating financial inclusion in rural Ghana where other financial institutions are thinly spread. Therefore it is working closely with the ARB Apex Bank to restore each bank’s financial solidity.
Some of the 30 are likely to stay in operation through impending mergers. Following the ARB Bank’s success in facilitating a merger between three RCBs in the Central Region into what is now Gomoa Community Bank, it is now helping to facilitate mergers involving seven RCBs in the Western Region and another two in the Brong Ahafo Region.
Another initiative from JCS Investments seeks to secure core capital for some RCBs through listings on the Ghana Alternative Stock Exchange, but it is unlikely any initial public offer can be executed before the end of February 2020 deadline.
Despite all this the decision not to engage in mass revocations of licenses in the RCB sector is increasingly being justified by industry performance data. For instance the industry average capital adequacy ratio is 13.9 percent, well above the 10 percent prudential minimum. Just as importantly, 130 RCBs, translating to 90.3 percent of the total have complied with the minimum primary reserve requirement of eight percent and indeed the industry average is a sturdy 18.2 percent.
Asset quality is rising too. By July his year, the industry’s non-performing loans ratio had fallen to 11.87 percent, down from 12.5 percent a year earlier.
However those industry averages mask major inadequacies by a handful of RCBs and regulators are also having to deal with regulatory compliance shortcomings. Said Dr Opoku-Afari in Takoradi last week: “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.”
Indeed, regulators are reluctant to provide the laggard RCBs with the new capital they need because they fear that such capital would be mis-used in similar manner to their original share capital. They reckon that mergers, by deconcentrating ownership and management authority in the merged entities, would force better corporate governance and risk management practices to be adopted.
However it is still unclear how the BoG and the RCB Apex Bank will deal with any RCBs that fail to recapitalize on their own or through mergers.