INCREASE IN MINIMUM CAPITAL, A DISINCENTIVE (PAGE 20)

A Research conducted into the operations of rural and commercial banks, especially those in the northern sector of the country, has revealed that increase in the minimum capital requirements and secondary reserve ratio by the Bank of Ghana (BoG) will weigh down the operations of rural and community banks (RCBs).
The research, conducted by two firms, Pinnacle Investment and Trade Aid Integrated, was commissioned by the north-eastern chapter of the Association of Rural Banks, with support from the Business Sector Advocacy Challenge (BUSAC) Fund.
The main objective of the study was to examine the effect of the two key policies on the operation of rural banks in Ghana, with special focus on rural banks in northern Ghana.
The finding of the research was presented to operators of RCBs at a sensitisation forum held in Bolgatanga.
While conceding that the minimum capital requirement was a major factor determining the establishment of new RCBs and maintaining existing ones, the study suggested that the wholesale increase from GH¢50,000 to GH¢150,000 without the corresponding measures to support distressed RCBs could result in the demise of a number of rural banks, particularly those in northern Ghana.
“This finding takes full account of the spatial inequality in the distribution of income, which, for now, is dangerously disadvantageous to the northern sector of Ghana,” it said.
Touching on the secondary reserve ratio, which is currently 30 per cent, the study said it posed another problem, in 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 advanced to their customers, thereby hampering their productivity.
The study indicated that most of RCBs in the northern sector found it difficult to pay dividends, which is a disincentive to investment and which would affect the ability of RCBs to raise further capital.
The study recommended that the current minimum capital requirement be maintained, at least, for three more years and any increase should not be more than double of the existing amount.
It recommended that if the minimum capital requirement must be increased at all cost, it should be accompanied by additional policy measures that could seek to support distressed RCBs to meet the new requirement.
It also supported the view of the BoG to scrap the secondary reserve ratio and asked that it should be sped up.
The study recommended that northern sector rural banks be allowed to continue to open agencies, whilst they strived to meet the minimum required capital and also be allowed to pay dividends to shareholders, whilst organising to meet the minimum capital.
The President of the North Eastern Chapter of the Association of Rural Banks, Mr John Asabigi, appealed to the appropriate authorities, especially the BoG, to implement the recommendations of the research to enable RCBs to undertake their activities, since it was a major sector for addressing the poverty of the people.