BoG reviewing supervisory and regulatory frameworks for rural banks
The Central Bank in a bid to restructure rural banking in the country is currently reviewing regulatory and supervisory frameworks for Rural and Community Banks (RCBs).
The review of the regulatory and supervisory frameworks for RCBs as disclosed by the Governor of the Bank of Ghana (BoG), Dr Ernest Addison, follows the Bank’s identification of severely impaired capital, low asset quality, liquidity crises, and poor governance structures among RCBs in the financial sector clean-up exercise by the Apex Bank.
The review, the Governor added, is to reposition RCBs to better realign with the founding objectives of fostering rural economic development.
“In 2017, the Bank of Ghana embarked on a clean-up exercise of the financial sector, having identified the prevalence of system risks across several institutions, including some RCBs. These included severely impaired capital, low asset quality, liquidity crises, and poor governance structures, which threatened depositors’ funds and undermined efforts aimed at promoting financial inclusion.
“After the initial clean-up of the banking sector, the Bank collaborated with the ARB Apex Bank to reposition RCBs to better realign with the founding objectives of
fostering rural economic development. Given the unique nature and expected role of RCBs in the financial sector, the Bank has rolled out some initiatives, including an ongoing review of the Apex Bank model as well as the regulatory and supervisory frameworks to restructure the rural banking concept in Ghana,” stated the Governor at the 40th Anniversary Celebration of Akuapem Rural Bank Limited.
Speaking further at the anniversary celebraation, the Governor averred his outfit in addressing weaknesses such as corporate governace weakness identified among RCBs in the clean-up execise issued the Corporate Governance Directive and Risk Management Guideline for RCBs to establish sound corporate governance principles and best practices within the rural banking sector.
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“To address lingering corporate governance and risk management weaknesses in the rural banking sector, the Bank published the Corporate Governance Directive and Risk Management Guideline for rural and community banks. The Corporate Governance Directive establishes sound corporate governance principles and best practices within the rural banking sector.
“Among others, it is expected to promote governance systems that will create the environment for individual institutions to undertake their licensed business sustainably, serve the best interest of depositors and other stakeholders and enhance overall corporate performance, accountability, and public trust.
“There is also the Risk Management Guidelines that seek to provide a comprehensive risk management framework that will enable rural and community banks to fashion an appropriate culture of risk management in their respective institutions,” he remarked.
Concluding his speech at the function, the Governor praised RCBs in the country for the substantial progress made in the areas of profitability, deposits, total assets and non-performing loans (NPLs).
“We must admit that a lot of progress has been made within the sector. From 30 rural banks in the 1980’s, we now have 145 of such institutions with a branch network of about 851. The increased number of rural banks has been accompanied by increased customer reach, technology deployment, as well as
improved delivery of financial services within the local communities.
“As at the end of June 30, 2021, the overall profitability of the rural banking sector was positive, and the sector recorded an annual growth of 27.4 percent in total assets, which amounted to GH¢6.5 billion. Advances, deposits and investments also increased by 23.6, 31.2 and 50.1 percent, respectively. The sector’s non-performing loans ratio declined to 11.5 percent from 12.3 percent a year earlier, signalling an improvement in asset quality,” he added.
