Bank of Ghana directs banks to build profile of borrowers

The Bank of Ghana (BoG) has asked all banks to develop and build profiles of borrowers of their clients to help the banks determine their lending rates appropriately.

First Deputy Governor of the Bank of Ghana, Dr Maxwell Opoku Afari

The First Deputy Governor of BoG, Dr Maxwell Opoku-Afari, said this will help the banks bring down interest charges on loans and to keep borrowers informed for negotiating lending rates with their banks.

Dr Opoku-Afari gave the directive at a two-day financial training workshop for members of Journalists for Business Advocacy (JBA) in Accra.

“We want people to have different lending rates based on their credit risks. We want to force the banks to explain why they are charging so much on loans and what goes into the calculation of individual lending rates,” Dr Opoku-Afari said.

The profile details expected to be taken by the banks include the credit history and revenues generated by their businesses, frequent changes of residential addresses and whether they are a flight risk.

The ratio of Non-Performing Loans (NPL) is currently at 18.47% after going up to 23% a year ago.

Ghana has one of the highest NPL ratios in sub-Saharan Africa. The banks in Ghana use this to rationalise the high interest margins they demand.

The central bank since 2017, has reduced its benchmark Monetary Policy Rate by 1,000 basis points, from 26% to 16%. This is a deliberate easing of its monetary policy stance.

However, the commercial banks have not reduced their lending rates as much, and average lending rates have reduced slowly by barely 600 basis points.

The Governor of the BoG, Dr Ernest Addison, earlier said this was due to a policy transmission lag.

But the BoG now admits they need to use a more direct regulatory approach to lower lending rates further.

It has therefore put in place several macro-prudential measures to boost credit to small and medium enterprises (SMEs), enhance competition in the banking sector and in the process help lower lending rates.

These measures include setting aside 2% of banks' primary reserve to support targeted lending to SMEs as part of the Enterprise Credit Scheme announced in the 2020 budget.

The BoG is considering setting a minimum loan ratio to ensure that deposits by banks are channelled into viable private sector projects.

The Central Bank is also putting strategies in place to that they do not pass on their operational inefficiencies and overhead costs to their clients.

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