Bank of Ghana increases rural banks' requirement

Abokobi (Greater Accra), 14th August 1999

Mr. J. B. Clottey, Chief Manager at the banking supervision department of the Bank of Ghana(BOG) on Saturday said the central bank would increase the minimum capital requirement for new rural banks from 30 million cedis to 100 million cedis. The increase, he said, is meant to strengthen the operation capital of the banks so that they don't depend on the central bank and customers.

Speaking at the seventh annual general meeting of the Abokobi Rural Bank at Abokobi, near Accra, Mr Clottey said the level of risks in the operational, liquidity and credit facilities have necessitated the new requirements.

"A bank needs to raise its own capital or resources to be able to absorb losses arising from the issuing of credit, liquidity and operational risks", the Chief Manager said.

Mr Clottey said BOG's policy of maintaining the original principle of community ownership of rural banks still holds.

He said "the Central bank has prescribed maximum equity ownership of 10 per cent for individuals and 33 per cent for corporate bodies".

Mr. Clottey said to ensure the success of rural banks, BOG has required that members of the board of directors must possess some minimum of basic educational qualification in banking, professional experience or special expertise.

The banker said such experience would "help the board members to understand and interpret financial statements and operationalise internal and supervisory policies of the banks".

He said measures have also been instituted to ensure that rural bank managers regularly take their annual leave, to minimise if not eliminate fraudulent dealings at the banks.

Mr Clottey mentioned "embezzlement, short landing of specie, suppression of cheques, unauthorised credit, unauthorised leasing, and purchase of vehicles" as some of the many offences that in some cases lead to the collapse of rural banks.

The chief Manager warned that any board members or staff found to be involved in such offences would receive spot sanctions.

The Bank recorded a net profit of 30.2 million cedis last year, as compared to a loss of 42 million cedis in 1997, Mr. R. A. Boi- Doku, chairman of the board of directors disclosed at the meeting.

He said the achievement was the result of the good mechanisms put in place by the bank and its board to ensure that all loans issued were retrieved. He said unfortunately, the 1998 profit would not be used as dividend but rather be transferred to the Income Surplus Account. This will help to reduce the loss of 67,149,318 million cedis incurred over the years, he said.

Mr. Boi-Doku said the bank's total bad debts, which was 180 million cedis in 1995 had been reduced to about 120 million cedis as at December 31, 1998.

He also announced that the total short-term facilities granted by the bank in 1998 amounted to 460,565,000 million cedis and were all in the area of Agriculture, transport, trading, cottage industry and loans to salaried workers.

Mr. Boi-Doku said the bank's capital base had been eroded due to poor credit recovery and appealed to shareholders to purchase more shares to increase the bank's fortunes.

He said because of the recent reports on armed robberies at rural banks, the bank has taken a number of security measures to protect the its properties.

The Board Chairman thanked the Ga district Assembly for providing the bank with five million cedis for poverty alleviation.

Nii Akwei Thompson, Ga District Chief Executive, commended the bank for helping to raise the living standard of the people through short-term credit facilities.

He appealed to defaulters to repay loans, as "this attitude of non- payment of loans does not augur well for the sustenance of the scheme, and the growth of the bank".

Mr. Sampson Ottu Darko, MP for Ga North called on entrepreneurs to establish industries in Abokobi and its surrounding areas to help reduce the high unemployment rate. He also called on the inhabitants to save with the bank to enable them qualify for the bank's short-term credit facilities.