Rural and community banks must be saved

DISTRESSED stated-owned investment firm, the National Trust Holding Company (NTHC), has requested an urgent bailout from the government to enable it to meet its indebtedness to ailing rural and community banks (RCBs) across the country.

The GH¢500 million bailout request is also expected to help the trust to settle its numerous retail customers who have been victims of its liquidity crunch since 2019.

The company’s debt overhang has its roots in the financial sector clean-up exercise that occurred since August 2017.

In spite of the huge amount spent as a result of the banking crisis that threatened the country’s financial landscape over the years, the deep-rooted challenges still linger, with RCBs feeling the brunt of the problem that has so far cost the taxpayer in excess of GH¢21 billion and still counting (see front page).

The Graphic Business fully backs the request by the NTHC for a bailout to help keep the numerous troubled RCBs in business.

It is recalled that until the establishment of RCBs in the country in the late 1970s and the subsequent expansion of other service providers into rural areas, access to institutional credit for farm and non-farm activities was scarce.

The main sources of credit were moneylenders and traders who charged very high interest rates. In many rural communities, secure, safe and convenient savings and payment facilities hardly existed, making inhabitants vulnerable to all manner of crimes. Avenues for job creation and development were also stifled.

The transformation that the rural and community banking concept has brought to these areas cannot be underestimated and, therefore, every effort needs to be made to ensure that RCBs do not collapse.

The Graphic Business is aware that many of the RCBs that are presently facing serious liquidity challenges failed in their risk management practices and fell for higher-than-normal interest rates offered them by some of the collapsed financial and non-banking institutions at the time, hence their predicament.

We also know that some managers and boards of RCBs were complicit in shady deals which over-exposed their banks to excessive risk.

It is estimated that more than GH¢100 million worth of investments from the RCBs are locked up and this has to be unlocked as soon as possible because time is running out for most of them.

We are aware that the NTHC request is coming at a time when the government is in dire need of funds and, therefore, attending to this bailout may be difficult. However, it is obvious that the consequences of a collapsed rural banking sector will be more costly to rural communities and the state in general in the medium to long term if measures are not put in place to salvage the situation.

This is the more reason the government ought to do all it can to ensure that these RCBs are kept afloat to enable them to play their roles in their jurisdictions by helping small businesses and creating indirect jobs for the mass of the people. Their survival will also help minimise or prevent rural-urban migration.

It is also our hope that the various investigations being conducted to ascertain how this financial mess happened will be expedited to bring the perpetrators to book and serve as a deterrent to others.