Customers of commercial banks would be restricted in their borrowings from any bank in the coming months if he/she does not have a credible loan repayment track record.
This will follow the strict enforcement of the new Borrowers and Lenders Act, by commercial banks in the country.
The Bank of Ghana has served notice it is currently engaging industry players for a repeal of the current law on borrowing and lending.
Passed by Parliament for about a decade now, the Borrowers and Lenders Act amongst others provides the legal framework for credit and sets improved standards of disclosure of information by borrowers and lenders.
The Act also acts as a check on certain credit practices which may be injurious for the banking sector.
But with the prevailing challenges facing the banking industry, it has become apparent to review aspects of the law to cater for how wrongful loan disbursements could be minimized if not completely eradicated.
At a stakeholders’ meeting on creating a robust financial sector, the Second Deputy Governor of the Bank of Ghana, Mrs Elsie Addo Awadzi disclosed that there are currently discussions on the way forward for the new borrowers and lenders act.
“We also hope that banks will do their part so that the entire current infrastructure in place is working well. We are actually proposing a repeal of the Borrowers and Lenders Act and the replacement of the Act. It is early days yet as the law is currently going around the major stakeholders for their inputs,” she stated.
NPLs rise in 2017
The banking sector report for January 2018 showed that the share of non-performing loans of commercial banks increased from 6.14 billion cedis to 8.58 billion cedis between December 2016 and the same period in 2016.
This translates into an NPL ratio of 22.7 percent in December 2017 from 17.3 percent the previous year.
This came despite a reduction in loans and advances issued to businesses which stood at an estimated 38 billion cedis.
Banks welcome new policy
The Managing Director of Zenith Bank, Henry Oroh is hopeful of the impact of the new law.
“The review of that Act will take care of a lot of the bottlenecks in the current Act and provide clarity to the banks and borrowers on how they should meet their obligations and reduce the unnecessary impairment in the market place which has a lot of capital for a lot of banks in Ghana,” Mr. Oroh stressed.
The Bank of Ghana recently re-launched its collateral registry system as part of measures to sanitise the industry.
The registry will afford commercial banks real time information on the risks of any customer they may issue out loans to.
Meanwhile, the President of the Association of Bankers and MD of Stanbic Bank, Alhassan Andani is confident the new reforms will cater for the excessive delays at the courts involving debt recoveries.
Mr. Andani believes such situations have compelled banks to classify non-performing loans which when corrected, will reduce their plight.
“Recovering loans has a very finite time horizon; if you don’t, and it goes beyond a certain number of days, the bank has to impair that facility and write it down against its balance sheet. If we were to do that religiously in this country, most banks would have gone down,” he argued.