The Bank of Ghana is advising savings and loans companies across the country to reassess their business models.
Head of Banking Supervision Department at the Bank of Ghana, Osei Gyasi said the companies should focus on investing in small and medium scale enterprises to help in reducing its non-performing loans (NPLs).
Speaking at the 14th Annual General Meeting of the Ghana Association of Savings and Loans Companies, Mr. Gyasi said, the sector’s high financing costs have resulted in high lending rates, which he says is hurting the industry’s ability to compete.
In his speech, he urged the savings and loans companies to create a strong bond with the SME sector to keep their business thriving.
“The high financing cost in the savings and loans subsector has also translated into high lending rate which is negatively affecting competitiveness. In the face of isometric information, economic theory suggests that one of the outcomes of high lending rate adverse selection of risk customers who are likely to default on their loans. It is therefore not surprising that the savings and loans subsector is saddled with high non-performing loans”
“Non-performing loans reduce profitability, liquidity and capital erosion. Distinguished guests, savings and loans companies must revisit their first love and strengthen their bonds with MSMEs sector where the greater are achievable. The sector should rethink its business strategy and models and target low-income entrepreneurs, youths and women”, he stated
He further highlighted the importance of savings and loans companies using technology and FinTech partnerships to reach underserved customers and improve financial inclusion.
“In the recent past, related party transactions and override of internal control mechanisms had led to serious compliance breaches and excessive risk-taking activities without commensurate risk management practices”, he added
The Ghana Association of Savings and Loans Companies 14th Annual General Meeting was on the theme: “Advancing Financial Inclusion for All: The Role of Savings and Loans.”