BoG denies imminent mass liquidations of RCBs

The Bank of Ghana (BoG) has assured of no impending plans of cleaning up of the Rural and Community Banks sector (RCB) through mass liquidations, as alleged by the malicious messages that had recently been reported on social media.

First Deputy Governor of the Bank of Ghana, Dr. Maxwel Opoku-Afari, in an interview with Goldstreet Business, assured that the overwhelming majority of RCB’s are solvent, liquid and strong, in contrast to malicious reports of an intended clean-up by the central bank similar to the one recently announced in the micro-finance industry where nearly two thirds of the licensed institutions have been compulsorily liquidated.

Dr. Opoku-Afari said the regulator continuously monitors and supervises that segment of the financial intermediation sector in order to ensure compliance with regulatory requirements as well as to secure the funds of depositors.

Importantly however, while the BoG will eventually get around to the RCB sector in its clean-up exercise, this is not an immediate priority, a situation which financial sector analysts interpret as an indication that the BoG is not unduly worried with the state of the sector currently.

Indeed, the biggest threat to depositors in the RCB industry currently is the recent run on deposits instigated by the false rumours of impending mass liquidations.

Last week, the Managing Director of the ARB Apex Bank, Mr. Kojo Matta revealed that some RCBs lost as much as GHc1 million per bank within a week to panic withdrawals that were inspired by social media rumours concerning the viability of the community-based lenders.

“As you may know that the panic withdrawal emanating from the spreading of malicious messages on social media has stopped,” he strongly noted.

The rumours were to the effect that the 144 RCBs that are currently in operation were experiencing liquidity challenges, which made them the next in line to be liquidated by the BoG after the ongoing reforms in the microfinance subsector had been concluded.

Earlier this month, the BoG indicated that the clean-up exercises that has so far been conducted in the financial sector are only targeted at insolvent and illiquid financial institutions, which are not able to meet depositor withdrawals.

Although the panic withdrawals were a blow to the affected RCBs and the entire subsector in general, the MD said the ability of the banks to contain the run-ins “for now” showed that the subsector was resilient and robust contrary to speculations that the players were suffering from some liquidity challenges.

Instructively internal reports based on quantitative analyses by the ARB Apex Bank shows that all but four of the 144 licensed RCBs are at least liquid and solvent enough to stay in business and meet their obligations to depositors even though some of them require prudent regulatory interventions. Such required interventions include the completion of the ongoing recapitalization exercise in the sector, intensified debt collection, and strengthening of risk management processes.

Instructively though the RCB sector has enjoyed significantly better corporate governance practices than the universal banking sector applied prior to the introduction of the BoG ‘s new corporate governance directives in 2018 and this has reflected in generally more prudent financial management and resultantly, better financial healthy. This is because the ARB Apex Bank has prudently insisted on best practice with regards to corporate governance for several years now. Thus, for example, cases of insider deals whereby bank directors lend to themselves, family and friends without due process are much rarer than in the erstwhile universal banking sector.

The comparatively more prudent financial management practices adopted by RCBs reflect in the number of RCBs that are members of the Ghana Investment Promotion Centre’s Ghana Club 100, which comprises the leading majority privately owned corporations in Ghana. RCBs regularly contribute about a fifth of the GC 100’s membership, more than any other sector, the universal banking sector inclusive.