Secondly, Mr. Speaker, as the hon. Member for Jirapa (Mr. Edward Salia) said, the District Assemblies have a duty to support the rural banks. It is not enough just passing the Poverty Alleviation Fund through the rural banks. I would recommend that the District Assemblies should see the rural banks as their vehicles of development.
This is because, in fact, Mr. Speaker, I think all would agree that in the advanced economies, it is the banks which drive investments; it is the banks which mobilize resources and invest in businesses. Over here in Ghana, it is almost a different story. The banks are sitting in Accra, just mobilizing resources and just adding interest upon interest and then we are groping in darkness. Mr. Speaker, I think that this situation should be reversed and I think the Central Bank can help a lot if they get the rural banks encouraged to operate in this area.
Finally, Mr. Speaker, I think that we
should take a second look at the quality of management of the various rural banks. And in this regard, I think it would help a lot if graduates from our various polytechnics and universities, especially those in the financial institutions, can be sent there both as national service personnel and also for permanent jobs to make sure that when you take your money to the rural bank, it would be safe and you can trust them for recovery.
Mr. Speaker, with these few words, I want to associate myself with the Statement.
Mr. Michael Teye Nyaunu (NDC -
Lower Manya): Mr. Speaker, thank you very much for the opportunity. I wish to associate myself with the Statement on the floor.
[CAPT. EFFAH-DARTEY (RETD)] Mr. Speaker, a lot has been said about the functions of the rural banks and the role that they are playing in the financial sector of this economy. Mr. Speaker, I wish to put on record that it looks like the rural banks are not getting the necessary support for them to be as viable as we are looking up to them to be. Mr. Speaker, I am saying this because currently the banking environment has become very competitive and their rates are being fluctuated up and down.
Mr. Speaker, I am saying this because I look at the Central Government sending big chunks of monies through the old, traditional, established banks and not regarding the rural banks. Mr. Speaker, a typical example is the District Assembly Common Fund which goes through a bigger traditional bank like the National Investment Bank, but when the District Assemblies or the Metropolitan Assemblies need funds they rush to the rural banks for assistance. I think that since it is a competitive environment, the Central Government should also recognize and channel these funds to them. And I think that would erase the negative perception that the rural banks are not capable of managing those funds.
Mr. Speaker, I would also want to put
on record that, like the hon. Colleague who just contributed said, it looks as if we doubt the capacity of the rural banks now. Mr. Speaker, I have been a member of the Manya Krobo Rural Bank Board of Directors for the past thirteen years and I can tell him on authority that we are underrating or underestimating the capacity of the management and staff of the rural banks and it has been affecting these banks.
Currently, we have Managing Directors with second degrees in charge of these rural banks. A lot of them have moved from the bigger banks and have taken
over this area. A lot of the banks have now become computerized and they are giving services like any other bank in the country. So I think that we should not try to say that they do not have the capacity; they have the capacity. We should try to trust them and by doing that we would encourage them and people would do business with them.
Mr. Speaker, I would also want to put on
record that the rural banks have not been established as charitable organizations. Mr. Speaker, they are also profit-oriented and they are in for business. As such, that over-restriction on them -- Some people say that they must be limited to the rural areas. Mr. Speaker, what is the sense of doing business without making profits? What is the sense in trying to invest money in very high- risk areas?
Agriculture, we know in this country, is rain-fed. Mr. Speaker, when a farmer goes for a loan and then the weather fails, the rain does not fall as it is expected, definitely, the farmer would not be in a position to pay the loan. So if we are telling the rural banks to be limited to where they are supposed to operate -- agriculture and all those things -- then what are we trying to do? Are we trying to kill them moribund or what?
I think it is about time we tried to view these rural banks from a very positive perspective, realistic view. We should consider the present environment and give them the needed support. I think by so doing we are going to improve upon our financial sector as well.
Mr. Speaker, thank you very much for
Mr. Simon Osei-Mensah (NPP
-- Bosomtwe): Mr. Speaker, the performance of rural banks in this country actually needs a lot of commendation.
That notwithstanding, there are a lot of problems also facing these rural banks. Mr. Speaker, in the last Club 100 rating, about twelve rural banks were nominated. Fortunately, and coincidentally my rural bank was the best rural community bank in the country; we placed forty-ninth - [Hear! Hear!] And I am happy to be the board chairman of the rural bank, which bears the same name of my constituency.
Mr. Speaker, what I realize is that
most of these rural banks are faced with a number of challenges. The major challenge, currently, is the declining interest rates, which requires an efficient management of the loan portfolio as well as the funds available to the various rural banks. Mr. Speaker, formerly when Treasury Bills or Government Securities attracted high interest rates of around 30 per cent, 40 per cent, most of these rural banks could only lodge most of their funds in Treasury Bills and could make it at the end of the year. The situation has changed drastically. Now, 91-Day Treasury Bills is around 9 per cent. With this, it means that even the spread or the margin between lending rates and deposit rates is dwindling. This requires efficient utilization of the funds available.
Also, it requires that there should be diversification of their investments. Now, rural banks should shift from this banking practice of just investing in Treasury Bills to granting of loans and advances, and not just loans but quality loans.
One problem that has resulted in most of the rural banks having huge non- performing assets in terms of loans on their balance sheets is that most of the appraisals are based on only ability to pay without the willingness to pay. One major problem with the payment of loans in the rural areas is the lack of the willingness of customers to pay for the loans. And most of these project appraisal processes rely solely on the ability of the customer to
pay. But we know we have some people, who may have all the money on this earth but will fail to pay for the loan: this is characteristic of most of the people in the rural areas.
Mr. Speaker, with these challenges in sight, it means that management should be very effective and efficient. The cost- control measures in the system should be very effective; the quality of the assets of the company should be very high and they have to reduce the defaulting rates. Mr. Speaker, these require that the executive management of all the banks should be well-balanced in terms of quality, that is, experience and educational background. They should have people who are accountants, bankers; they should have lawyers, auditors and so on and so forth so that at the Board meetings they can discuss issues objectively and then move these banks forward.
Mr. Speaker, again management should
also be efficient, especially when it comes to management of the credit and then the funds. If they leave a lot of idle funds in their votes it is a loss to the banks because while the money will be sitting in the vote, attracting no income to the bank, at the same time they will be paying interest to the depositors.
Also it requires that there should be diversification of the loan portfolio. One, if they concentrate all their funds in one economic area, let us say agriculture, and that year if the rains or the conditions should fail the bank then it will mean that there would be a lot of losses to the banks because they cannot even recover the principal, they cannot also recover the interest that is going to give them income, and at the end of the day the banks are likely to make huge losses.