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Business News of Saturday, 31 January 2009

Source: GNA

Minimum Capital Requirements, Secondary Reserve Ration affect ...

Rural Banks' Operations - Research Findings
Bolgatanga, Jan. 31, GNA- The increase of the Minimum Capital Requirements and Secondary Reserve Ration by the Bank of Ghana (BOG) would hamper the operations of Rural and Community Banks (RCBs), a research finding has said.

The Research spearheaded by the North-Eastern Chapter of the Association of Rural Banks and carried out by Managing Consultant of Pinnacle Investment and Trade Aid Integrated, indicated that the increase

in Minimum Capital from 50,000 Ghana Cedis to 150,000 Ghana Cedis without the corresponding measures to support distressed RCBs could result in the demise of a number of rural banks particularly those in the Northern Ghana.

"This could have serious consequences for rural financial intermediation which is so critical to national development", it stated. The research findings also said the Secondary Reserve Ration which was currently 30 per cent poses another problem and indicated that it would be a barrier to rural banking especially the banks in the three Northern Regions because it would reduce their working capital which would in turn reduce the amount and number of loans that could be made to their customers thereby hampering their productivity. It indicated that most of RCBs in the Northern sector find it difficult to pay dividends which serves as a disincentive to investment which would affect the ability of RCBs to raise further capital.

The research findings mentioned some of the major challenges confronting RCBS as the 2,000 Ghana Cedis loan ratification policies and said this leads to a delay in serving some of their clients who demand loans above 2,000 Ghana Cedis.

"The consequence of this was a growing lack of confidence in RCBs thereby making them lose some major customers." The Research findings also indicated that the proposal that RCBs which were not able to meet the Minimum Capital could merge would rather defeat the purpose of Rural Banking since the interest of the mergers would be to make profit. It said it would also create administrative problems and confrontations between communities.

The Research recommended that the current minimum capital requirement be maintained at least three more years and any increase should not be more than double of the existing amount. It also recommended that any future consideration of an increase in the Minimum Capital requirement take into account the distribution of income across the country.

"A better understanding of the distribution of income, given spatial variation in endowment and socio-economic infrastructure is imperative towards the formulating of policy on Minimum Capital requirement. This may prove effective in placing the RBCs at a level that can truly contribute to achieving sustainable poverty reduction, whilst fostering economic growth", it added.

It recommended that if the Minimum capital requirement must be increased at all cost, it should be accompanied with additional policy measures that could seek to support distressed RCBs to meet the new requirement.

The Research findings also supported the view of BOG to scrap the Secondary Reserve Ration and asked that it should be sped up. It recommended APEX Bank, in collaboration of BOG to subsidize the training cost instead full cost recovery and also asked that automation of RCBs by the Millennium Development Authority to facilitate their work to be able to satisfy customers.

The Research recommended that Northern rural banks be allowed to continue to open agencies whilst they strived to meet the Minimum required Capital and also be allowed to pay dividend to shareholders, whilst organizing to meet the minimum capital. It recommended that politicians should stop pressurizing RBCs to give loans.

Mr. John Asabigi, President of the North Eastern Chapter of Rural Banks commended the Business Sector Advocacy Challenge (BUSAC) for sponsoring the Research. He appealed to the appropriate authorities, especially BOG to implement the recommendations of the research to enable RBCs to undertake their activities since it was a major sector for addressing the poverty needs of the people.

He indicated that there was the need for BOG and other partners in development to create an enabling environment for more rural banks to be opened in the rural areas to alleviate poverty.