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Are rural banks well-positioned for 2018 and beyond?

By: Joseph Akossey
The ARP Apex Bank is to help rural and community banks position themselves for profitability,
The ARP Apex Bank is to help rural and community banks position themselves for profitability,

The year 2017 has ended. We have ushered in the New Year with expectations, targets and the like. There is the likelihood that some rural banks are smiling because they were able to achieve their target in terms of deposits, profit, and other key balance sheet indicators. Others are not happy because they were not able to achieve their set target.

Rural banks that were not able to achieve their target should do both internal and external analysis to bring out the reasons why they were not able to achieve their target so that they can strategise well for 2018.

The 28 rural and community banks (RCBs) that are ranked in the  Ghana Club 100 companies, especially to Dr Alex Asmah and his team (Amenfiman Rural Bank) for maintaining  the bank’s position in Club 100 as a leader in the rural banking industry, need to be commended. The bank really deserves it considering its outstanding performance in the 2017 financial year. 

Positioning strategies
Place Premium on customer retention

In their bid to comply with the new minimum capital requirement of Gh¢ 400 million, universal banks are working hard to raise funds from several sources. The additional capital will be utilised thereby leading to massive injection into the economy.

The government is committed to paying the energy sector debt owed to the universal banks. This is likely to improve liquidity of the banks which will in turn boost their lending capacity.

The non-bank financial institutions, such as the savings and loans companies, finance houses, among others have got the signal that the regulator, Bank of Ghana (BoG), will likely increase their minimum paid up capital. Therefore, some of them have begun sourcing funds to top up their capital. This will impact on their ability to lend.

The above mentioned factors will no doubt intensify competition with regard to lending to the public. In view of this, RCBs should strive to retain their customers and make them loyal by delivering excellent customer service. According to Marketing Manager of South Akim Rural Bank, Mr Richard Kpodji, excellent customer service is a game changer.

RCBs should, therefore, do their best to ensure that staff interactions with customers lead to an amazing customer experience.

Cost Management Efficiency
Short term investment in the form of the fixed deposit instrument is one of the major sources of income for RCBs. However, rates are going down and expected to continue downward all things being equal.

This will reduce interest on investments generated by RCBs which will result in low interest income. This will ultimately have adverse effects on total income and profit.

The current macroeconomic stability, coupled with the likely massive injection as already mentioned, can trigger lower rate of interest on loans.

When this occurs, interest spread will shrink which will also have adverse effect on interest income. To minimise the negative impact of what has been discussed above, RCBs should manage cost effectively and efficiently.

In other words, there is the need to improve operational efficiency. In doing this, RCBs should avoid wastage which can increase cost thereby deteriorating the cost to income ratio.

In order to improve income, RCBs should introduce innovative and marketable products to meet the evolving needs of customers. I want to recommend to RCBs to introduce innovative microfinance products since the microfinance segment has been neglected by the major banks.

Embrace digital banking
According to Mr Samuel Nuamah Dankwa, the General Manager of Nwabiagya Rural Bank, RCBs should position themselves amidst the competitive banking landscape by embracing digital banking. He said technology was evolving and banking today was shifting to digitisation. Hence, RCBs should take advantage of that in order to remain relevant.

The astute banker went on to say that RCBs should invest in technology infrastructure in order to roll out digital banking products. No wonder Nwabiagya Rural Bank is pioneering digitisation in rural banking.

It is the first rural bank in the country to roll out Mobile app (E-pass book) which allows customers to transfer money from one account to the other. Customers can also transfer money form their accounts to their Mobile Money Wallet and vice versa. Furthermore, the E-pass book allows customers to check their account balances and statements among others.

In fact, technology is changing the face of banking by offering banks high speed in delivering banking services to clients. Instead of customers travelling through traffic to access basic banking services, one can access the same services without visiting the brick and mortar branch.

Through digital banking such as the Internet and mobile banking, customers can sit in the comfort of their offices and homes and do all that they want to do.

The above mentioned customer benefits from digital banking should motivate RCBs to be innovators and not laggards.

Remain well– capitalised
Higher capital is vitally important when it comes to banking business. Banks with adequate capital have the ability to withstand shocks. Furthermore, when RCBs are able to improve on their capital base, they will be in a better position to undertake big ticket transactions in their operational areas. This will accelerate economic transformation in rural areas.

RCBs should, therefore, strive to attract fresh capital injection through aggressive share mobilisation. Management of RCBs should strategise very well to ensure steady and higher profit so as to strengthen capital base.

Serving as pillar and support for government flagship projects.
RCBs should position themselves to support government’s flagship projects such as Planting for Food and Jobs. One way of doing this is by lending to farmers in their operational areas so as to boost agriculture growth. Amenfiman Rural Bank in the Western Region is doing extremely well in this regard. In the 2017 financial year, the bank granted loans of approximately Gh¢12 million to farmers.

Suma Rural Bank in the Brong Ahafo Region is also doing well when it comes to supporting the agriculture sector. The bank has developed two special products for farmers. The products are Vegetable Growers Loan Scheme (VGLS) for vegetable growers and Cashew Farmers Special Loan Scheme (CaFLS) meant for cashew farmers.

RCBs should also put in place the necessary structures and systems which will make them attractive and viable financial institutions thereby encouraging the government to partner with them for implementation of certain flagship projects and policy initiatives in rural areas.

The banking landscape is changing and 2018 is of no exception. RCBs should, therefore, be proactive, innovative and competitive in order to remain in existence.

The writer is the head of Proven Trusted Solutions, an employee training and development and marketing research firm.
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