RCBs told to reduce NPLs

The Executive Director of Proven Trusted Solutions, Joseph Akossey, has urged rural and community banks (RCBs) to be proactive in their loan recovery efforts so as to reduce the industry’s non-performing loans ratio (NPLs).

Statistics from the RCBs Performance Report at the end of March 2021 indicated that the rural banking industry recorded NPLs of 11.77 percent – which was significantly higher than the benchmark of 5 percent. “Eighty-one banks recorded ratios above the benchmark,” says the ARB Apex Bank.

However, to reduce the industry’s NPLs, Mr. Akossey said RCBs must adopt innovative ways – including technology, a move that he is confident will not only deliver growth but also ensure the long-term sustainability of rural banks.

“Bad loans don’t look good on RCB’s books, and banks have to make huge impairment charges; and also it affects capital adequacy ratio and the net worth of banks, a situation that can lead to insolvency,” he argued.

Given that the introduction of rural and community banking forms part of efforts to promote financial inclusion in the country, Mr. Akossey said it is part of RCBs’ mandate to lend, particularly to small and medium enterprises (SMEs), micro-businesses among others.

But in order to meet this obligation, he encouraged RCBs not to sit passively for loans to go bad before pursuing borrowers or taking legal actions which are time-consuming, laborious and wasteful, but rather intensify their monitoring processes.

With records showing that ‘bad loans’ account for the collapse of many financial institutions, he said effectively monitoring loans helps to ensure schedules are met.

For example, data from the Bank of Ghana (BoG) show that as of April 2023, non-performing loans in the banking sector stood at 18 percent against the minimum regulatory benchmark of 5 percent.

Mr. Akossey observed that most people usually tend to borrow without having the ability to pay back. This, he said, requires due diligence by lending institutions to determine a borrower’s capacity to pay back; adding that effective loan monitoring will also help to overcome the incidence of past-due and non-performing loans.

Mr. Akossey was speaking in an interview on the side-lines of a workshop organised by the Subin-Akwaboso Rural Bank in the Central Region, and also urged RCBs to regularly train their loan officers.

He said loan officers have to acquire the right skills of the modern lending models, especially in these changing times for the banking industry.

“If you are a loan officer, your responsibility goes beyond just disbursing funds. You should also try to monitor your customers to see whether the funds that were borrowed are being applied to the said purpose – while also encouraging payment on time to benefit from subsequent borrowing,” he said.

He said lessons from the recent financial sector reforms reveal that bad loans were key to the insolvency of many financial institutions. “So, going forward, rural banks have to improve on their loan administration and improve loan quality – while being mindful that lending is part of their core business, and they shouldn’t just mobilise funds from people and invest all in government securities.”

Subin-Akwaboso Rural Bank

He said the Subin-Akwaboso Rural Bank, established some nine months ago, through its effective lending scheme is supporting the growth of businesses in its host communities.

Also, the Chief Executive Officer of Subin-Akwaboso Rural Bank, Francis Azure, attributed the bank’s performance to support received from the ARB Apex Bank Limited as well as the Association of Rural Banks.

He noted that the training and support offered by these institutions to has positioned the bank to achieve the successes recorded so far.

Subin-Akwaboso Rural Bank, which currently operates a head office and just one branch, according to Mr. Azure also leverages the good name of its promoters to meet customer needs.

Rural banking has gained more ground in the current times, he said. “For some time, certain people harbored a level of fear in doing business with rural banks – but the aftermath of the banking sector clean-up has proved the resilience of RCBs,” he said.

Because of this, he observed, people have a sense of ownership; and knowing that Subin-Akwaboso Rural Bank is part of such an industry, have no fears at all in doing business with the bank.

“The good image of rural banks gives people a lot of confidence, especially because our operations are backed by ARB Apex Bank and the Association of Rural Banks – and also regulated by the Bank of Ghana (BoG),” he said.

The bank, he said, prioritises delivery of swift turnaround time – which is key to the ambition of always delivering superior customer services.

Mr. Azure is optimistic that with the approval of regulators, the bank will soon expand to cover other areas within its operational territory.



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The Executive Director of Proven Trusted Solutions, Joseph Akossey, has urged rural and community banks (RCBs) to be proactive in their loan recovery efforts so as to reduce the industry’s non-performing loans ratio (NPLs).