Defaulting Borrowers Undermine Lending To Private Sector — Governor
The Governor of the Bank of Ghana (BoG), Dr Ernest Addison, has taken issue with businesses that are reluctant to repay their loans, describing them as “serial borrowers” whose poor repayment culture undermines the capacity of banks to support private sector growth.
He said evidence available to the central bank showed that some business owners and their firms, most of which were established ones, had developed the habit of taking loans from more than one bank and failing to repay promptly.
He said at a press conference yesterday that the development had resulted in the rise in delinquent loans to GH¢1.9 billion in the first quarter of the year and forced the banking sector to write off GH¢4.6 billion last year.
Dr Addison said the amount was equivalent to 9.8 per cent of the industry’s total loans and advances for last year.
MPC
The Governor was speaking at the BoG’s Monetary Policy Committee (MPC) press conference where its benchmark rate, the policy rate, was reduced by 100 basis points from 14.5 to 13.5 per cent after keeping it steady for a year.
It followed the conclusion of its 100th MPC meeting after the establishment of the committee in 2002.
Risk-free instruments
Responding to questions on why banks were reluctant to lend, in spite of favourable conditions, Dr Addison said “poor repayment culture of borrowers” had made lending extremely risky for banks.
He said the high default rate had pushed banks into risk-free government securities, to the neglect of giving funds to businesses.
Dr Addison explained that although initiatives such as the credit referencing bureau and the collateral registry systems were established to help address the poor attitude of lenders, they had yielded fewer results.
The Governor noted that the Judiciary was also not “helpful” in deterring delinquency, as it allowed defaulters to employ adjournments and other complicated measures during litigation to frustrate the lending institutions.
He, therefore, called on businesses and the general borrowing public to change their ways by being prompt in loan repayment to help banks and other financial institutions to lend more to the private sector.
Banking sector
The Governor said the banking sector maintained its resilient performance through to April by posting strong growth in total assets, deposits and investments.
He said total assets increased by 16.4 per cent to GH¢155.7 billion, on the back of strong growth in investments in government securities.
Dr Addison said investment in government securities grew by 34.9 per cent to GH¢73.3 billion, funded by deposits and loan repayments.
“Total deposits recorded an annual growth of 24.2 per cent to GH¢104.9 billion, on the back of the strong liquidity flows from the fiscal stimulus and payments to contractors and to depositors and clients of defunct specialised deposit-taking institutions (SDIs) and SEC-licensed fund managers, respectively.
“Overall, the impact of the COVID-19 pandemic on the industry’s performance was moderate, as banks remained liquid, profitable and well-capitalised,” he said.
Policy rate
On the policy rate, Dr Addison said the reduction followed easing in inflation and the need to bolster growth.
While admitting that the commenced implementation of the new tax measures and hikes in petroleum product prices could raise price pressures, the Governor said the central bank did not expect them to translate into higher inflation in the coming months.