BOG governor impresses on rural banks to back up
Accra (Greater Accra) 20 November 2000
The Governor of the Bank of Ghana (BOG) on Saturday asked rural banks to re-direct their credit operations towards agriculture, rural industry, small-scale food processing and other productive activities.
"This is the only way to develop the agriculture base of the economy to support local industry and the export sector," he said in a speech read for him at the 11th biennial general meeting of the association of rural banks in Accra.
He said that even though deposits mobilised by the 111 rural banks have improved, a greater percentage of the funds are directed towards unproductive investments.
According to statistics available at the BOG for August 2000, total deposits mobilised by rural banks stood at 184.7 billion cedis, showing a growth of 41 per cent over the same period last year.
Total loans and advances granted by the banks stood at 72 billion cedis, an increase of 16.7 per cent.
Investment in treasury bills went up by about 400 per cent from 21.5 billion cedis to 104.4 billion cedis during the period.
Dr Duffuor said: "in spite of these seemingly impressive statistics, the industry is yet to have any significant impact on rural development."
He said their share of total deposits of the banking industry stands at 6.5 per cent, adding that for the first nine months of the year, an average of 50 per cent of the rural banks have had difficulty in meeting the capital adequacy ratio of six per cent.
A similar number has not been reporting regularly on the distribution of their loans and advances to the rural public.
Dr Duffuor gave a breakdown of sectoral analysis of loans and advances granted by rural banks by June 2000 as:
a) Agriculture......19 per cent
b) Cottage Industry....4 per cent
c) Transport............7 per cent
d) Trading...............23 per cent
e) Others................47 per cent
The Governor said: "Indeed, it is not a very desirable development to allocate as much as 47 per cent of rural bank's loan portfolio to salaried workers since, loans to workers mostly go into consumption expenditures.
"Again, 23 per cent of loans going to trading as against 19 per cent to agriculture is not a desirable development if we need to improve food production and other related activities.
"If this pattern is allowed to dominate credit operations of rural banks, it will be extremely difficult to bring any meaningful economic development to the rural sector, which has 65 per cent of the nation's population."
Dr Duffuor said in view of the serious operational problems facing the rural banks, the Central Bank had to withdraw licenses of 23 of them, which were distressed beyond redemption.
"As I speak now, three rural banks in the Brong Ahafo region are becoming distressed and if the situation does not improve...we will be compelled to withdraw their licenses," the governor said.
He criticised the heavy investment in treasury bills and called on the banks not to compromise the need to employ qualified staff and directors.
He also urged them to pursue sound and transparent banking practices and effective internal control systems. Dr Sam Dufu, President of the association, said BOG's immense interest in the rural banking system has brought tremendous transformation to their operations.
This has enabled them to play a more meaningful and useful role in the economy, he said. He said he welcomed the financial assistance package put together by the World Bank's International Development Association, International Fund for Agricultural Development, African Development Bank and DANIDA for the rural banks to undertake the Rural Financial Service Project.
The project will be implemented through the Apex Bank, which will act as a "mini-central bank" for the rural banks. The head office and some branches of the apex bank are expected to be operational next year.
A major aspect of the project is capacity building for rural banks, and other micro-finance institutions through which opportunities will be provided to pursue a common objective of deepening and enhancing rural financial inter-mediation.
The project will also foster wider outreach and growth of rural financial services. The apex bank will undertake functions like cheque clearing, funds management and telegraphic transfers among rural banks.
The project which will last for six years is expected to modernise and transform rural banks into specialised or a development banking system.
GRi../