Chief Executive Officer of the Ghana Association of Banks (GAB), John Awuah, has said there is a pressing need for collaborative efforts to aggressively address challenges facing the country’s credit environment.
Speaking during a webinar on sustaining confidence in the financial sector, Mr. Awauh expressed concern over the seemingly low loan-to-deposit and loan-to-credit ratios in the industry – as well as the protracted judicial system, which he said significantly hampers loan recovery and allows defaulting customers to exploit the courts; putting banks in a vulnerable position.
“Looking at the judicial system, it takes on average three to five years for loan recovery. When a customer is known to have defaulted, the customer becomes a champion in our courts. He is the hunter, and the bank becomes the hunted,” he remarked.
Mr. Awauh echoed sentiments shared by other industry analysts, emphasising the need for improvements in loan adjudication, recovery processes and better know your customer (KYC) protocols.
In recent times, there have been instances when individuals who oversaw the collapse of businesses that owe banks were able to set up new entities, and access credit from the banking system without any consequences.
The GAB top officer cautioned against merely focusing on superficial measures that boost the top line without addressing the underlying problems. As an example, he pointed to instances when banks discovered that the Lands Commission had endorsed and registered documents but customers had alternative documents and sold off the assets – leading to complications during execution.
The CEO also drew attention to the prevalence of individuals who having taken loans from banks vanish without repayment, driving non-performing loans (NPLs) to alarming levels.
“Almost everyone has an experience of a close associate who has taken money and disappeared. It is these same persons who come to the banking system, take personal loans and drive NPLs to 15 percent. That means for every GH¢100 that banks give out, on average they are likely to lose at least GH¢15,” he explained, underscoring the need for urgency to address the systemic issues contributing to the credit environment’s challenges.
Data from the Bank of Ghana show that the industry’s non-performing loans ratio deteriorated to 18 percent in April 2023 from 14.3 percent in April 2022, in part due to elevated credit risks.
To tackle these issues comprehensively, Mr. Awauh stressed the need for a thorough discussion that addresses the entire framework and credit culture. He argued against granting access to lending for individuals who default on their property rates, for instance; citing that this practice does not align with forward-looking approaches adopted elsewhere.
While acknowledging the Ghana card’s positive impact, he questioned the effectiveness of efforts to expedite progress and collaboration among stakeholders.
As of December 2022, lending to households had grown by only 14.4 percent on a year-on-year basis compared to 38.5 percent to firms.