Risk Management in Rural and Community Banks: The Ghanaian Experience

Abstract

Despite the significance of effective risk management practices in deepening prudent financial management in Ghana's Rural and Community Banks (RCBs) there appear to be a paucity of empirical studies highlighting the various kinds of risks faced by RCBs. Such studies will enhance RCBs understanding of the extent to which Ghana's RCBs operations are affected by ineffective risk management practices. The purpose of this paper therefore is to examine the extent to which Ghanaian Rural and Community Banks deploy risk management practices in addressing the types of risk affecting their operations using data through a survey involving respondents from Rural and Community Banks and Bank of Ghana/ARB Apex bank. The study uses primary data collected through survey questionnaire from respondents sampled from the RCBs and the Bank of Ghana/ARB/Apex Bank. The research also uses secondary data collected from the ARB/Apex Bank quarterly reports on Rural and Community Banks operations in Ghana. Our empirical findings indicate that credit risk, liquidity risk, operational risk and legal /regulatory risk are the major forms of risk affecting rural and community banks in Ghana. The paper recommends the enforcement of risk management regulations by the ARB Apex Bank and the Bank of Ghana. On the other hand, Rural and community banks should create risk management department and recruit qualified and experience personnel to ensure effective and efficient risk management practices. The research focused on Rural and Community Banks in Ghana and as such the results may not necessarily represent RCBs in other countries.