National Investment Bank — Supporting business going into manufacturing for long term funds for their operations. Bank for Housing Construction — Supporting the home-builder and contractors with long term funds for construction. Agricultural Development Bank — Supporting business going into large scale farming with long term funds for their operations.
The weaknesses include weak financials, low profitability resulting from high non- performing loan assets, less liquidity, low capital reserve, low level of technology and lack of competition Aboagye-Debrah, ; Anim, The banking sector was attacked strongly due to the macroeconomic instability and resulted in high interest rates for lending, high rate of inflation and fluctuating and unstable exchange rate.
This period immediately after the , signaled the end of Socialism in Ghana and provided tools for economic development through of liberalization in certain sectors of the economy.
The reforms removed a regime characterized by controls to a market-based regime and then liberalized controls on interest rates of bank credit. The BOG shifted gradually from a direct system of monetary controls to an indirect system that utilized market- based policy instruments to control credit in the country. The BOG introduced new financial instruments and adopted open market operations for liquidity management in the country for the first time.
The new Banking Law was enacted in , enabling suitable locally incorporated bodies to file applications for licences to operate as banking institutions. This legislation makes provision for the licensing of non-banking financial institutions seeking to operate as, inter alia, discount companies, finance houses, building societies, or leasing and hire- purchase companies.
Additional reforms in the financial sector was conducted through the licensing of banks to serve as the fundamental to develop specialized segments of banking and financial services notably merchant banking, development banking, retail banking, and rural-based banking and finance institutions. There was also provision made for the licensing of non-banking financial institutions under the Financial Institutions Non-Banking Law P.
By the end of , banks were able to meet the new capital adequacy requirements. In addition, the government announced the establishment of the First Finance Company in to help distressed but potentially viable companies to recapitalize.
Despite offering some of the highest lending rates in West Africa, Ghana's banks enjoyed increased business in the early s because of high deposit rates. The Bank of Ghana raised its rediscount rate in stages to around 35 percent by mid, driving money market and commercial bank interest rates well above the rate of inflation, thus making real interest rates substantially positive.
Regulatory Reforms in the Banking Sector after the Economic Liberalization The following regulatory and legal frameworks were introduced and operating within the banks, non- bank financial institutions as well as forex bureau operating in Ghana in the recent times: 1. Banking Act, Act 3. Companies Act , 5. The weaknesses identified recently with the financial crisis and changes in regulations to prevent the recurrence of similar financial crisis might have resulted in decisions to introduce new financial regulations to improve upon the existing regulations and also in an anticipation of the country economic growth mainly in the account of oil production.
The key new regulations that were introduced recently by Bank of Ghana into the banking sector in the anticipation of the expected economic growth are mainly on the account of oil production. The banking sector has repositioned itself to contribute to this growth. The following regulations were after with the hope of ensuring continued protection of the financial sector: 1. The activities permitted will support the credit risk management function of the industry.
These include: Gathering and maintaining data for the formation of credit histories; Processing credit related data and delivering credit reports based partly or fully on information not in the public domain 2. The regulation also sets the minimum capital requirement for new Commercial Banks coming into the banking sector at a minimum of GHS million. At the same time the minimum capital requirements for non- bank financial institutions and finance houses would increase from GHS1 million and GHS1.
Basel II: The earlier requirement for banks to comply with Basel II saw some activities in the form of redesign and retooling of management information systems in readiness to comply with the new regulatory requirements. Cheque clearing cycle: The Codeline Clearing CCC system was introduced in January to enable banks and other financial institutions to speed up the processing and settlement of cheque transactions.
Under the system, depositors of cheques are expected to get value within three days. The RTGS has created an enabling environment for safe, sound, secure and timely payments. The Bank of Ghana implemented a new Base Rate formula, which seeks to ensure transparency and uniformity in loan pricing in the banking industry.
The revised base rate system replaced the existing base rate regime and started operation in July According to Porter , not only responds to the environment but also attempts to shape the environment in its favour. All organisations must continually make adjustments to maintain optimal function and one of the techniques used to determine where adjustments need to be made is SWOT analysis. Strengths The bank of Ghana setting a new minimum of capital of GHS million and the existing ones to increase their minimum capital from GHS25 million to GHS60 enhanced market power of domestic banks, giving impetus to dynamic efficiency.
Additionally with the introduction of RTGS in the banking sector, the systemic payments and settlement risks associated with payment orders are settled almost instantaneously. Secondly, the economy of Ghana is essentially a cash based economy and therefore banking regulations and supervision affect only small percentage of the economy while majority especially the informal sector is dependent on cash in circulation outside the banking sector.
This creates weakness for the usage of monitoring policy to control the financial sector of Ghana. The collapse of the Akuaffo Cheque system, a system introduced to reduced cash circulation in cocoa sector is a vivid example of this weaknesses of the cash based economy of Ghana. Another weakness is the banking sector of Ghana is the threat of the high currency depreciation due to the recent economic instability.
High inflation rate together with the depreciation local currency has contributed negatively to shareholder value of some banks in Ghana.
There is also a decline in interest rates. Moreover, there is shrinking margins and high operating cost arising from staff cost and operational technology Aboagye- Debrah, Bank of Ghana is yet to implement the recommendation of the Basel III for the requirement of capital conservation buffer in normal times consisting of a further amount of Core Tier 1 equity capital equal to 2.
Opportunities The banking sector in Ghana recovered from losses and weak profitability in The rebound in the profitability was propelled by improvements in the credit markets which allowed banks to improve upon quality of loan portfolio and release provisions set aside in the previous years for credit losses. There is vast opportunity in the mortgage sector and bank that can offer innovative product to tap the untapped rural sectors or the informal of the economy.
Boapeah opined that there is a great deal of cash in the rurals that can be mobilized into savings by banks that adopt innovative products that would enhance the profitability of the banking sector. Threats There is a strong agitation within business community including government for banks to reduce their lending rates. This is the due to the fact that others of the economy are struggling but the bank continued to post better profit. The government introduction of the National Fiscal Stabilisation Act with the aimed at of enhancing tax revenue from the most vibrant sectors of the economy, which the financial sector is inclusive.
There is a big difference between the policy rate announced by the Monetary Policy Committee and the lending rate of the bank. The customer believes the banks are making high profit due to this high gap between the lending rate and policy rate. Conclusions The recent changes in the global financial sector due the financial crisis are wake call to ensure the financial sector is sound.
This paper concluded that within the financial sector there has improvement in performance in Ghana after the liberalization in The reform to provide license individuals to form private banks has led to rationalization of major aspects of the financial section creating a new environment endangering efficiency and competition in the banking system.
This has also seen influx of foreign banks in the Ghana an indication that private capital is protected from the state control. Secondly, liberalization of the sector coupled with several legal frameworks has empowered the Bank of Ghana to act as the regulator and supervisor of the banking sectors a role that has enable the private sector to access the international capital markets.
This development has brought an excitement to investors, customers and regulators of good things to come. Recommendation The studies recommends that it is important for BOG to maintain competitive advantage and be sustainable in the long term, then it must be innovative in order to transform their operations to respond appropriately to emerging external threats and to overcome the threats require that industry players to focus on developing an efficient, effective and fixable banking infrastructure.
It is equally important for the sector to employ a robust Information Technology IT platform to support the increasing web based products and services which is currently redefining the product and service mix of many banks cannot be overemphasized. References Aboagye- Debrah, K Competition, growth and performance in the banking industry in Ghana.
A dissertation submitted to St. They were first initiated in in Ghana to expand savings mobilization and credit services in rural areas not served by commercial and development banks.
Under the Act, rural banks are mandated to carry out the following functions: 1. Provide current deposit and savings account to their customers in their locality. Provide funds for small scale entrepreneurs and farmers who are residents in the area. To act as executors and trustees of wills of small scale farmers. To act as agents of financial and non-financial institutions.
Asiedu-Mante mentioned the most pronounced of these distresses as those relating to liquidity, poor staffing, weak management, low capitalization, bad loan recovery and profitability, weak internal control and poor technology. He broadly classifies the problems Under four main categories: 1.
Institutional factors 2. Economic and political factors 3. Regulatory and supervisory factors 4. Credit facilities to boost agricultural projects in rural areas are usually at the mercies of the weather and other natural occurrences. Much more than that, the economic activities in a local community may not be sufficient to support the broad operations of its local rural bank.
Even as rural banks create innovative solutions to the peculiar challenges they face in their operations, additional capital investments can allow them diversify their operations to reduce risk and manage shocks.
Nair and Fissher provided some more specific challenges and restrictive framework of rural banks in Ghana. In their study, they outlined some causal factors as the poor operating environments for most rural banks and capacity constraints, especially in terms of finance.
Their study on rural banks in Ghana also revealed that the requirement of location-specific ownership of rural and community banks is a major impediment to the growth and network of rural and community bank through mergers and acquisitions. Gains from scale of economies, synergy, better managerial and operational performance in the sector are thereby lost. Rural banks are also faced with the challenge of improper keeping of records, especially the shares list that is crucial to consolidation activities.
These various underlying problems and challenges in the structure of rural banks in Ghana make consolidation policies and option a challenge in the rural banking sector. For example, risk of theft, firing, natural disaster.
Similarly, there are risks in running a business, because no business man can guarantee that he will make profits rather than losses. Even though, it is difficult to perfectly measure the risks, we can to some extent. The term uncertainty is used where future alternatives and outcomes are not known, such as in speculative ventures like the outcome of space research or of possible new inventions, contract and or option on our capital market.
Mensah, further argues that, financial institutions must also take into consideration, a multitude of forces that are interacting with the macroeconomic environment to change the financial services industry. These include the following: Advances in information and computer technologies have made it possible for market participants and regulators to collect and process information they need to measure, monitor and manage financial risk, to price and trade complex new financial instruments and manage large books of transactions.
Due to technological advancements, our local financial sector has undergone substantial changes becoming more dynamic and innovative. The number of new financial products and services has expanded dramatically. Also, globalization of national economies has led many countries including Ghana to lower barriers to international trade and cross border flows of goods and services have increased.
Significantly, stimulating demand for cross-border finance and in tandem with financial liberalization fostered the creation of an internationally mobile pool of capital.
Again, the liberalization of national financial markets coupled with improvements in information technologies and globalization has catalyzed financial innovation and spurred the growth of cross-border capital movements. The following are risks that the rural banks can face. Rural banks may also face this risk due to mismanagement of funds by management.
Thereby making it difficult for the institution to honour its obligations to their customers, that is to repay the depositors on demand. It is the risk that an issuer of debt securities or a borrower may default on his obligations or that the payment of the interest or the principal or both may not be made on a negotiable instrument.
This adversely affects their operations, hence decrease in profit margin. Schwartsz, Managers in the past have always used financial ratios in quantifying risks. The bank is not well equipped to manage, Ndenka. An effective management of rural banks requires a careful handling of possible risky outcomes.
In order to handle this, the management should summarize polices and strategies in a guideline for business management. The policies which a manager can refer are as follows: 1. Develop actions to fight the risks 2. Insurance or reinsurance 3. Using short dated investment appraisal methods 5. The use of capital rationing and ratio analysis. Ndenka, Managing Banks, It appears that risk abounds in the financial sector but a shrewd risk management will go a long way to ensure development and sustainability.
In this light, decisions in the future may turn out to have a negative effect on actual result or vice-versa or actual result can prone to be very different from expected results.
Risk management is therefore concerned with the identification of potential problems and eliminating or reducing the damage which they may result in if the problem materializes.
Risk management is a proactive approach rather than a reactive approach. It identifies, captures, processes and communicates risks management information to management concerning the operation of the organization.
It helps to analyze the nature of the cost associated with the management of risk. It allows the management team the opportunity to achieve its objectives as planned. In a company environment where risks management is absent, management plans is disrupted by the occurrence of some unseen events. It disposes management of all situations of risks which may prevent a company of achieving its objectives.
It is therefore presented with careful planning, arranging and controlling of operations and in order to resources minimize the impact of risks.
This will be done by highlighting the research of various authors in order to come out with an objective analyses of the topic understudied. Financial risks management instruments always above is one of the conditions for successful price stabilization.
Hugher-Harlettand and Ramanujan pointed out that instrument for managing commodity risks hedge only against price risks therefore leaving quantity risks and that buffer stock hedge against revenue risks. Furthermore, Claessens and Duncan added that the financial commodity risks in the absence of a directly available matching counter swap, manage the price risks on the swap by using short-dated futures and option markets.
The transfer of risks could be accomplished either by hedging second measure or by transferring funds, that is borrowing or lending third measure. The last measure aims at reducing the effect of commodity price changes on a certain domestic sector by forms or self insurance or domestic diversification. One approach that has been stressed up is the use of financial derivatives instruments forward future option to reduce the revenue variability.
It is suggested the producers could directly via dealer use the market to offset their exposure to price risks. Masouka added that for financial institutions like rural banks, assets liability management includes these activities that attempt to control exposure to financial and other price risks. Rural banks examine the risk exposure of their assets and liabilities to future price movements to develop their risk exposure profile because risk management operations reduces the possibility of unanticipated deviations from initial projection on economic variables.
Yet they were faced with directed credit programs by the governments, these latter were said to borrow too much from banks risk concentration. Thus they were forced to become insolvent or actually fell. If a bank takes more risks by investing in a credit facility, the bank might have returns to the extent of the degree of risk they have taken.
But this will only be done when there is a good risk management strategy to alleviate the effect of pure risks. For that reason rural banks must avoid the following situation in order to earn higher returns: 2. This practice may by the result of poor lending policies or of the free will of the banker who believes in the external health of a given borrower. Foundations of banking Lending to connected borrowers to the banker beyond certain limits is fraudulent. The bank is not well equipped to manage, Ndenka, An effective management of rural banks requires a careful handling of possible risks outcomes.
In order to handle this, management of Asokore rural bank should summarize policies and strategies as a guideline for the management of the bank. Evaluating control put in place to manage risks 4.
The use of capital rationing ratio analysis. It appears that risk abounds in the financial sector but a shrewd risk management will go a long way to ensure development and sustainability in the Asokore rural bank. It covers the profile of Asokore Rural Bank limited and the methodology use in undertaking the research. Research instrument data collection technique , data collection procedure and data analysis. Current shareholding of the bank is ,,, Over the past twenty five years, Asokore rural bank has continuously provided affordable financial service to the unbanked and the under banked populations in Ashanti region.
Both the number and volume of their portfolio have seen exponential growth and the bank have rolled out several financial products and service that are tailored to satisfy the financial needs of their customers. All the branches are in Ashanti as per the bank of Ghana regulation; which requires that rural banks are not suppose to go beyond its catchment area region.
Sources BOG As at December , the bank had a client base of forty three thousand eight hundred and eighty nine 43, Their client base are made up of farmers, traders, public and civil servants, institutions, transporters and artisans.
Representing an increase of According to Kerlinger survey is the best research design for obtaining social facts, beliefs and attitudes. Thus, survey research could study large as well as small populations to discover relative distribution and interrelation of sociological and psychological variables. The researcher uses questionnaire as a tool for data collection. In this research, the experiences and opinions of the respondents gathered from the interviews provided informed inputs to the data.
These data were analyzed and incorporated into the discussions of the findings. The study was to a large extent quantitative, so the questions were designed to suit quantitative analysis.
As a result, most of the questions were closed ended, however, there were a few open ended. There were separate questionnaires for the staff and the customers.
Both questionnaires were structured into sections in which each object and other segments of the study were represented by a section of the question. The questionnaires for the staff and customers were both structured. This three out of the seven branches were selected for the study.
Purposive sampling and accidental sampling techniques were used for this study. The purposive sampling allowed the picking of interview objects that fit the focus of the study Osuala, Also, according to Kumekpor cited in Mensah , with the purposive sampling, the sample units are selected not base on random procedure but intentionally selected for the study.
This is based on the fact that they have certain characteristics that suit the study or because of certain qualities they possess, which are not randomly distributed in the universe but necessary for the study. Since the main respondents for the study were staff members and customers of Asokore Rural Bank and looking at the nature and number of respondents there was no way the researcher could have contacted all the whole population.
Hence there was the need the respondents to be sampled. The sampling was not done scientifically randomly , but rather it was done in such away that adequate and reliable data can be collated from respondents. The researcher put in mechanisms to ensure the sample selected possess the same qualities as the entire population. This enabled the researcher to drawn valid conclusions for the study. The researcher used both quantitative and qualitative methods of data collection to gather the data.
With the help of the branch heads of the bank, the customers were interviewed through the questionnaires as they come into the banking hall to transact business. The researcher gave questionnaires to the General manger and the staff to give their response. The purpose of these techniques was to allow discussion and probing to ascertain the effect of risk management of the bank.
These sources were very useful in the literature review about the effect of risk management in rural banking. The literature reviewed served as both theoretical and empirical base for the analysis of the data collected. The data was analysed based on the stated objectives of the study using the computer especially the SPSS for tables and percentages. Other tools such as column graphs and pie charts were used in the presentation of results.
The data was analyzed both quantitatively and qualitatively with the use of frequency distribution module. Tables, pie and bar charts were used to represent the data. Inferences were drawn based on the analysis.
The data was analysed based on the objectives of the study. A total of hundred and twenty questionnaires were sent for customers of Asokore Rural bank Limited out of this number hundred were successfully answered.
On the part of staff twenty 20 questionnaires were issued out and all were answered. This presupposes that the sex status between the two genders is not that wide. Table 4. This also have impact on the profitability and loan portfolio of Asokore Rural bank since the young generations are very active in their various economic professions. Hence there will be transacting business with the bank and also apply for credit facilities. This demographic feature also has an impact on the credit structure and policy of Asokore Rural Bank.
Since marriage people tend to be more responsible than single people: from social and moral perceptive. There is this perception that rural banks customers are illiterate since most of their branches are found in the rural areas. In addition to the above, it reduces Asokore Rural Bank default risk level to some extent.
Since majority of their client base are quiet educated, when they apply for loans they will use it for the purpose. This is not absolute assurance but rather serve as a watch dog.
Most of the customers also have at least reasonable understanding of basic cash management and book keeping. Figure 4. From the diagram 4. This inequality between the gender populations was due to the fact that as at the time the questionnaires were being administered, the male group was mostly seen transacting business with customer and hence gave the excuse that they were busy.
It must also be noted that, sample selection of random sampling was adhered to, and was used to select all the respondents for the study. This has implication on serving and profitability of Asokore Rural Bank, in the sense that male workers tends to be more dedicated and serious in their ender ever than that of female workers and their attitude towards work.
These traits have negative relationship on the profit margin of Asokore Rural bank. This means that the bank have a youth staff, thus from figure 4. Majority of the staff population are within the youth generations bracket, which is good for the bank. Therefore they have gained considerable number of experience which helps mitigate minor mistakes which might put the bank at risk. Furthermore it increases the profitability of the bank, since most of the staff has reasonable level of experience in their various schedules; hence they are able to perform effectively and efficiently.
Source figure 4. Since majority of the staff are educated it help the risk management practice of the bank to be executed well and enhances any future training and programs on risk management. This presupposed that rural banking is improving in Ghana. At the same time, opportunities to design new products and provide more services have arisen.
The pace of these changes does not appear to be slowing as banks are constantly involved in developing new instruments, products, and services. Financial innovation has also led to the increased market orientation and marketability of bank assets, in particular through the introduction of securitization and more advanced derivative products.
Banks are subjected to a wide array of risks in the course of their operations, and therefore there is the need for staff to understand risk and its management. The figure demonstrates the opinions of staff of Asokore Rural bank. Their responses were categorized under the broad headings as shown in the table below. This is good for the management of the bank, because if respondents know and understand risk management they will face no or little challenges in trying to implement risk management strategies.
Respondents explained that financial institution should put in place measures to ensure their growth and to eliminate those risks that will stifle them. Which concludes that? Risk management is very critically in every organization.
All the respondents responded in an affirmative. When an institution has an effective and efficient risk management module it helps to eliminate possible risks that the institution may encounter in its credit delivery schedule.
If not well managed it can have a negative effect on the financial status of the organization. Respondents were asked to outline the risks that are facing rural banks in Ghana; the table below gives the types of risks and demonstrates the responses of respondents.
Banks are subjected to a wide array of risks in the course of their operations, as illustrated in table 4. In general, banking risks fall into three categories: financial, operational, and environmental risks. There is the need for rural banks to put in place appropriate measures to mitigate these exposures.
Some of the risks are within the limit of the organization whiles others are beyond the control of the institution. Financial management comprises risk management, a treasury function, financial planning and budgeting, accounting and information systems, and internal controls. Risk management normally involves several steps for each type of financial risk and for the overall risk Profile. These steps include the identification of an objective function, the risk management target, and measure of performance.
Also important is the identification and measurement of specific risk exposures in relation to the selected objective function, including assessment of the sensitivity of performance to expected and unexpected changes in underlying factors. Decisions must also be made on the acceptable degree of risk exposure and on the methods and instruments to hedge excessive exposure, as well as on choosing and executing hedging transactions. In addition, the responsibilities for various aspects of risk management must be assigned, the effectiveness of the risk management process assessed, and the competent and diligent execution of responsibilities ensured.
The purpose was to establish the methods used by Asokore rural bank in managing its risks. The table shows the techniques used by the bank as per respondents: Table 4. The risk management function should be on par with other major functions and be accorded the necessary visibility and leverage within the bank. An established, explicit, and clear risk management strategy and a related set of policies with corresponding operational targets.
It all started on the interest rate on savings, low constituted However, just 5. Responding on service charges, medium had the highest rating with Also with the turnaround time for loans, medium had the highest rate with Whilst high rate amounted to With access to credit facility, medium was the highest with On the loan interest rate, medium was rated the highest rating of On the commitment and processing fees medium rated the highest with the rating Rating Liquidity challenges in meeting withdrawal and loans demand, medium and high were, rated For collateral requirement, high was Thus, to assess the operational procedures used in managing credit facilities.
The situation of giving preference to the type of income generating activities before the loans were offered to the prospective borrower, On whether they collect collateral before issuing out the loans From the point of view of the officials interviewed, the following observations were made based on the criteria employed in the areas below.
In considering character as criteria for appraising customers before they are given loans, On the other hand, As Fraser observes, longer and broader relationships increase the amount and flow of information to lenders, enabling good borrowers to obtain better access to finance over time.
On the part of the SWOT analysis of the borrower, Meanwhile another As regards the cash flow statement of the borrower, Meanwhile, Moreover as regards the ability of the borrower to pay back. Moreover as regards the ability of the borrower to pay back the loan, In some case literature is cited in support or refutes the findings.
The study was conducted with a set of research objectives as a guide. It draws conclusions on the entire work and makes recommendations for the study. Financial institution serves the purpose of facilitating the accumulation and allocation of capital by channeling individual savings into loans to government and businesses.
The transactions of financial institutions thus consist of loans to customers and the purchase of investment portfolios in the market. Risks are present whenever human are unable to predict, control or perfectly foresee the future. Similarly, we are exposed to a whole lot of risks in our day to day activities whether in domestic or commerce. It emerged from the research that risk management is very critical to the survival of rural banks in Ghana. Failure to effectively and efficiently manage it can kick one financial institution out of business.
They also believe that if it is properly executed by institutions involved, cost will be minimize at the end of the day. This can only be done through carefully scanning of the business industry to identify the weaknesses and threat that are likely to affect the institution, analyzing and appraising all investment to determine their net present value NPV before embarking on.
The risk management module put in place to mitigate or prevent default risk will set the pace for who qualifies what amount to grant, repayment period and the nature and terms of the loan agreement. According to respondents the essence of the lied down procedures is to ensure delivery and prompt payment of loans so as to reduce default risk to minimum level.
Zero tolerances for credit risk. It was established that the bank had written down loan policy to guide credit delivery in the bank. The policies covered the broad areas that should be addressed in written loan policies, regardless of a business's size or location. In other words, the bank policy was not the one that can liberate its clients from the socio-economic doldrums or worsen their plights. Respondents expressed the opinion that, the cost involved in putting in place these risk management systems is quiet huge, but if you compare it with the benefit that an institution will derived from such an investment decision.
One of the objectives of the study was to identify how loans are granted to customers. From the information that was gathered from the study it appears that loans are granted to those who are only customers of the bank and before loans are assessed one have to go through a lied down procedures before the credit will be granted.
From the prospective of the respondents the current loan process is okay, since it is helping to avoid fraudulent deals and any risks that may hamper the institution in the course of credit delivery. There is still more room for improvement according to respondents for the institution to structure it credit procedure and processes well in order to remain competitive in the banking industry. Since customers now have a lot of choices to choose from, it is therefore very crucial for the bank to reevaluate and redesign it credit policy in order to meet modern times.
The problem of the study was that there had not been enough studies and thus, there was very little knowledge documented in the area of effective risks management and thus, it was uncertain whether the current state of risks management is good enough to positively impact on the bank and on its customers.
0コメント