Dep BoG governor highlights effects of digital technology, COVID-19 on Ghana’s economy

Rural and community banks (RCBs) have ended a three-day annual CEOs conference at Ho, the Volta Regional capital. The two-day event of the 21st Annual CEOs Conference of the ARB Apex Bank held between Friday, October 14th and Saturday, October 15th, 2022 brought together top management of the Apex Bank, the Bank of Ghana, and other related financial institutions. The conference was held on the theme: “Positioning Rural Banking at the Center of Financial Services Delivery in Ghana – the Role of Stakeholders.” The conference has over the years offered an exceptional forum for RCBs to cooperate, promote the interests of the rural and community banking industry as well as strengthen standards of practice in the rural banking community. Mrs. Elsie Addo Awadzi, Second Deputy Governor of the Bank of Ghana, sitting in as the special guest of honor while noting the significant role of the rural community banks in Ghana’s economy observed that the sector which currently comprises some 147 Rural Community Banks, remained one of the key pillars of financial inclusion in Ghana with millions of depositors and loan customers. Mrs., Awadzi said, “The role of the RCB industry in our economy has been significant, providing critical financial services to the MSME sector, the informal sector, and low-income households. Indeed, the RCB sector currently comprising 147 Rural Community Banks remains one of the key pillars of financial inclusion in Ghana with some 8 million depositors and over 6 million loan customers.” She furthered that there nevertheless remained more opportunities to be explored by the RCBs to ensure that they continue to play more important roles in their catchment areas toward the country’s sustainable economic transformation. With the event taking place at this crucial time of the covid-19 pandemic, she stressed the dire implications for credit risk and the overall financial performance of the industry and the need for the banks to adopt strategic measures to address them. Against the Backdrop of a slowdown in global economic growth and accommodative fiscal and monetary policies, the governor identified “high rates of inflation, high-interest rates, and tighter financing conditions” across the globe and local economy as hitting hard at customers of RCB in the face of the covid-19 pandemic and its aftermath. She furthered that the situation had implications for credit risk and the overall financial performance of the industry. According to Mrs. Awadzi, rural community banking, hence, needs to supplement its capital base as required to deploy additional secured systems and structures in compliance with the cyber and information security directive of the Bank of Ghana. Adaptation and implementation of a digital transformation strategy Mrs. Elsie Addo Awadzi also urged the Rural and Community Banks (RCBs) to adopt and implement a digital transformation strategy to sustain significance in the financial services sector. According to her, the RCB sector cannot afford to wait much longer before it begins to leverage emerging technologies to modernize its business models to meet the fast-changing needs of its customers and to remain relevant to the segment of the economy that was traditionally served by the sector. The deputy governor while noting that the Rural Community Banks must consider digital technology and leverage their strengths in penetrating their catchment areas said this must be done to study its strategies to add value to the products and services to suit customers. Noting that technology was being embraced with the commercial banks riding on digital technology coupled with the government’s digitization drive to increase appeal among rural and local communities, she said, “For a start, technology is fast disrupting traditional business models for delivering finance all around the world and is redefining financial services as we knew them. “Digital financial services are now the future and are creating opportunities to reach existing customers and the previously unbanked in cost-effective ways. This also means that universal banks are now able to reach communities and people with their services much easier and cheaper than they previously could, and thereby competing with the RCB sector on your own turf,” she noted. Mrs. Awadzi added that with digital technology now redefining the financial landscape, commercial banks are now able to reach communities cost-effectively using technology, adding that the divide between what belongs to the RCB sector and the commercial banks are gone. “There is no boundary in the financial market, and it’s a wake-up call for the RCB sector,” cautioned the governor. The governor while warning the RCBs of the dangers and implications of the sector’s failure to adopt the digital transformation said customers would be forced to rethink the use of rural banks as commercial banks continued to break grounds in a space that was considered exclusively for RCBs. According to her, financial institutions that were still not digital transformation technology compliant were clearly behind the curve, and urged them to strive to restructure to remain relevant. She assured the rural commercial banks of the continued recognition and support of the government and various stakeholders, adding that the Ministry of Finance and the BoG would continue to support the sector to grow along the digital transformation path. To ensure that no one is left behind, she urged the RCBs to use their lending power to promote cleaner and more environmentally sustainable ways of doing business in their various communities and promote social inclusion through lending to women, youth, and other marginalized groups. Underscoring the need for the RCBs to strengthen their internal controls and promote high standards of legal and ethical behaviour by its staff, Mrs. Awadzi said, “Staff members are expected to ensure high levels of utmost good faith in the discharge of their duties. The Bank of Ghana’s 2021 Fraud Report for the banking sector revealed that the RCB sector recorded the highest level of employee involvement (46.04%) in fraud cases, due to poor internal controls among other things.” According to the governor, another key area that the RCB sector must take seriously towards repositioning is the adoption of sustainable banking practices. Citing a November 2019 activity, she said, the Bank of Ghana launched Ghana’s Sustainable Banking Principles, in collaboration with the Ghana Association of Bankers and the Environmental Protection Agency after years of research, study tours, and technical work with the support of the International Finance Cooperation. She added that universal banks were already implementing these principles that require them to manage Environmental, Social, and Governance (ESG) risks in their operations.