Rural banks need operational paradigm shift not mergers – expert

The network of rural and community banks reaches million of depositors and thousands of borrowers, making it the largest group of licensed financial service providers in rural Ghana.

But the relatively high ratio of nonperforming loans and the continued operation of poorly performing banks remain issues facing the network.

According to banking expert, Nana Otuo Acheampong, the rural banks need to do more to generate profit for shareholders.

He observed that the rural banks are taking good care of depositors’ money but “in terms of profitability, there is still room for improvement; they can work harder and give their shareholders more profit than they are doing now”.

To avoid the risk of liquidating poor performing banks, there have been suggestions for mergers with strong banks to address the challenge of capital inadequacy.

But Nana Otuo believes the rural banks in their present standing are not ready for mergers. He told Luv Biz Report the rural banks can only submit to mergers when they become attractive.

“Before you even go into a merger, you polish yourself before you become attractive…so for you to become a merger target, then it means you’ve got to ready yourself and so they need to have a shift in paradigm, put their house in order and once they become attractive, if they feel the merger route is the way to grow and increase profit then why not; value will be in it and others will buy them”, he emphasized.

Rural and community Banks in Ashanti have been in a training session on best industry practices at the Osei Tutu II Center for Executive Education and Research (OTCEER) in Kumasi.

The training focused on empowering boards of rural banks to help shape the banks for the future, especially is complying with the Bank of Ghana’s rules and regulations.

“Part of the monitoring system that the regulator has in place is the completion of what we call Prudential Returns, where the Central Bank wants to know the assets and liabilities of the banks and how they’re taking care of depositors money”, said Nana Otuo.

The next phase of the training will target internal auditors of the rural banks to enforce compliance and assurance issues.

Story by Kofi Adu Domfeh