Rural banks urged to put house in order

The profitability of some rural and community banks (RCBs) in the country has been predicted to fall by close of the financial year, due to failure to put in place control measures that curb their cost to income ratio -- currently trending above industry average and the benchmark.

According to the Efficiency Monitoring Unit, EMU, report for the 4th quarter of 2015 financial year, a number of RCBs have cost to income ratios higher than the industry standard of 70 percent.

This, a marketing research consultant and expert in rural banking Mr. Joseph Akossey has warned, could likely impact negatively on the profitability of these banks if care is not taken to examine the cost elements.

RCBs, just like other businesses in the country, in recent times have complained about the unbearable effects of the reccurring power crisis and subsequent increases in utility and fuel cost, which many say have raised the cost of doing business in Ghana.

But Mr. Akossey, noted that although some of these costs are uncontrollable, there are certain costs that can be controlled. He therefore advised that management of RCBs should take steps to critically review those costs which are leading to the high cost to income ratio.

He further suggested that conscientious efforts be made by RCBs to improve the quality of loans, in that non-performing loans lead to high provisions (high impairment charges) which also affect cost to income ratios.

“They should also stick to their budget and not introduce expenditure items that might not impact on income generation,” he added.

Again, management of RCBs should recruit when there is a need, and resist attempts by traditional authorities in their catchment areas and likewise board members to influence them to employ their relations when there are no vacancies.

He explained that improvement in customer service is another important area that should be considered, since customer satisfaction has a tendency to bring a positive image and word of mouth advertising. “This reduces cost of advertising and other mobilisation cost, thus helping to reduce cost to income ratio.”

On the other hand, RCBs can also reduce the high cost to income ratio by working hard to increase their income. This will involve mobilising more deposits so as to give more quality loans while making more investments.

The Head of Proven Trusted Solutions made these pronouncements in an interview with the B&FT at the sidelines of a one-day sales training workshop for staff of Nafana Rural Bank in Sampa.

The workshop was organised under the theme ‘Deposit mobilisation and customer retention strategies’.

Given the current pace of growth of the rural banking industry, Mr. Akossey advised the management of ARB Apex Bank to reconsider the current cost of the T-24, which many RCBs have been complained about, so that it does not affect cost to income ratios of RCBs.

He also called for improvement of the Apex Link money transfer product in order to be able to compete with the mobile money transfer products introduced by almost all the telecommunication networks in the country.

“They should examine the product life cycle of the Apex Link transfer so that the right marketing strategies could be applied to make it attractive to both existing and potential customers,” he stated.

Among other recommendations, he stressed on the need for banks to invest in the training of their staff particularly when it comes to deposit mobilsation and customer relationship management.