Management of Business Development Services (BDS) Fund on Friday signed a 70,900-dollar grant with the Association of Rural Banks (ARB) to enable the Association to undertake a project aimed at helping Rural and Community Banks increase their capital base to 43 per cent.
The two-year project, which was co-signed by Worldwide Securities Limited and Consortium of Dajon Consulting Limited, is also expected to develop guidelines and procedures on mergers, acquisitions and listing of selected Rural and Community Banks (RCBs) on the Ghana Stock Exchange.
Speaking at the contract signing ceremony in Accra, Mr Alexis Fritz Kwabena Aning, the Fund Manager of BDS Fund (a fund under Micro Small and Medium Enterprise Project of the Ministry of Trade and Industry) expressed worry over the fact that most of RCBs were unable to meet the Bank of Ghana's 43 per cent capitalization requirement.
This challenge affecting most RCBs, according to him, may force the Bank of Ghana (BoG) to either close down or allow two-thirds of the banks to be merged or acquired by other RCBs by the end of 2010.
Mr Aning observed that poor governance, weak management and poor technology and communication infrastructure are among other challenges facing most of the 129 active RCBs, and had stifled the growth and role the banks.
He said the Board of ARB was expected to develop a code of conduct and ethics for RCBs and to train the members and management staff to prepare them adequately for the impending mergers and listing on the Ghana Stock Exchange.
Mr Aning said ARB was required to review the BoG and Securities and Exchange Commission regulatory requirements as well as establishing a Unit within the Association that would coordinate technical assistance services to the RCBs for the said merging and listing on the stock exchange exercise.
Mr Aning expressed the hope that the project would help more than 50 per cent of RCBs to meet the BoG's new minimum capital requirement by the end of 2010 and as a result, "acquire an enhanced capacity to deliver more credit and financial services for rural economic development".
"The BoG has, as its new minimum capital requirement, instructed RCBs to raise their capital base to GH¢150,000 by the end of 2010," he added.
Mr Aning expressed confidence in the Board of ARB to effectively carry out the project in order to address challenges facing the RCBs.
Mr Kwadwo Konadu Asiamah, Executive Director of ARBs, who signed on behalf of the Association, thanked management of the DBS Fund and gave the assurance that, he would ensure that practical measures were put in place, to ensure the project succeeds.
He said the grant had come at a crucial time when many RCBs were facing serious challenges in raising their capital base to the required standards and pledged judicious, prudent, and transparent use of the funds in order to lift rural banks to universal banking status.
Speaking on some expected challenges, Mr Rexford Adomako-Bonsu, Chairman of Worldwide Securities Limited, said "it would not be easy for some shareholders and managers of such rural banks who are conservatives to accept mergers".
"Most of these rural and community banks are named after the communities they are located in and merging them will take their names off, a condition which would not be taken kindly and lightly by some shareholders especially."
He, however, expressed the hope that with proper dialogue, stakeholders would be made to understand the benefits of the merger and the banks being listed on the stock exchange which would boost their capital base in order to embark on bigger enterprises.
Mr Frederick Ayeh, a representative of the Dajon Consulting Limited, expressed concern about improper record keeping practices on the part of many institutions but gave the assurance that the challenge would be addressed in order to ensure speedy implementation of the project.
"Some banks may not have even shares certificates, registers and other records documented. We will ensure all these are ironed out to ensure smooth implementation of the project," he said.