Some rural and community banks (RCBs) lost as much as GH¢1 million per bank within a week to panic withdrawals that were inspired by social media rumours concerning the viability of the community-based lenders, the Managing Director of the ARB Apex Bank, Mr Kojo Matta, has revealed.
The rumours were to the effect that the 144 RCBs, that are currently in operation, were experiencing liquidity challenges and were, therefore, next in line to be cleaned by the Bank of Ghana (BoG) after the ongoing reforms in the microfinance subsector had concluded, Mr Mattah told the Daily Graphic on June 10.
Although the panic withdrawals were a blow to the affected RCBs and the entire subsector in general, the MD said the ability of the banks to contain the run-ins “for now” showed that the subsector was resilient and robust contrary to speculations that the players were suffering from some liquidity challenges.
In times when the affected banks required financial support to deal with the situation, Mr Mattah said, the ARB Apex Bank, which acts as a ‘mini’ central bank for the RCBs, “has intervened to give them additional support.”
“So, I can say that the rural banking industry is resilient and robust enough,” he assured.
Millions paid out
While describing the speculations as false, he explained that the messages had disrupted the normal course of banking in the RCBs.
“When the messages started going round, some of our banks called me and some had paid as much as GH¢1 million within a week,” he said, referring to the messages that were circulating on Facebook and WhatsApp in the week ending June 7.
“There are some banks in the Western Region that paid over a million cedis within a week. What that showed is when customers want their funds, the banks are in a position to pay,” he said.
The social media messages prompted BoG to issue a statement discounting the rumours and describing them as “malicious.” Since the statement from the central bank, Mr Mattah said “nerves have calmed down.”
The June 7 statement explained that the central bank’s clean-up exercise “is only directed at insolvent and illiquid financial institutions which are not able to meet depositors withdrawals.”
“The exercise is to enable depositors to have access to their fund,” it said, and further encouraged the general public and customers “to continue to do business with RCBs that are solvent, liquid and strong.”
Mr Mattah was worried that the financial worth of the RCBs could whittle down with time should the panic withdrawals continue, especially at when the rumours had caused customer deposits to slow down.
“Banks work on the premise that some customers will be making deposits and others will be making withdrawals.
“So, when we start spreading messages and stories about banks and nobody is sending deposits and everybody is going for withdrawals, it weakens their ability to pay,” Mr Mattah said.
Given that banks mostly use depositor funds to create loans, the MD said increased withdrawals within a short period meant that banks would have to revert to their loan customers for their funds to be able to meet the increased depositor demands; something that is impossible under the banking dispensation.
Consequently, he asked the general public and customers of the RCBs, in particular, to “have confidence in the banking sector” and the community-based banks, in particular, and continue to do normal business with them.
“All the things that the BoG has done, no customer has lost any money and that should be emphasised that it is to protect the customers and the depositor funds and no depositor has reported that he or she has lost money,” he said.
Update on BoG cleanup
Between August 2017 and May 2019, BoG has revoked the licenses of 395 financial institutions – nine banks, 347 microfinance institutions, and 39 microcredit institutions – under a far-reaching reform exercise that it said was meant to protect customers by removing insolvent, illiquid and poorly governed players form the financial sector.