Banking institutions are not observing Bank of Ghana’s (BOG) credit bureau policy that ensures quick and informed lending decisions, reduction in non-performing loans and risk-based pricing of loans.
The phenomenon is leading to banks having to contend with high cost and bureaucracy in recovering loans from defaulters due to insufficient information gathering and maintenance of data for the formation of credit histories.
Mr Ernest Tetteh, Corporate Banking, Zenith Bank, told the GNA in an interview during which he was asked to explain the default rate and its impact on banking business in Ghana.
He said the development of a credit bureau impacted on the overall economy of the country as it encouraged responsible borrowing and lending.
He added that it also allowed individuals and companies easy access to finance based on their past payment behaviour and provided opportunities for growth. “But many banks appear not to pay due diligence in observing the guidelines,” Mr Tetteh said.
He also said the trend was partly responsible for the high default rate in the banking sector and bad attitudes among clients, diversion or misapplication of funds and delay in payment of contractors.
Mr Tetteh explained that many customers have the attitude of borrowing money for non-economic ventures or using the money to honour household responsibilities or for drinking and attending social gatherings which did not yield any profitable returns.
He noted that others were also engaged in “racketeer borrowing” - borrowing from one banking institution to settle their commitments in other banks.
He added that many borrowers were unable to pay back loans because they misapplied or diverted the money into certain areas without any business advice and as a result ended up locking the capital.
Mr Tetteh noted that in some instances contractors engaged in massive borrowing due to the nature of their work, but unfortunately, some were not paid on time to enable them honour their loan responsibility at the right time.
He said in order to address the issue of default payment, banking institutions should pay due diligence to credit bureau guidelines.
“They should also sufficiently motivate staff in charge of loan administration to avoid connivance with unscrupulous customers to abscond or provide incorrect data,” he added.