Ghanaians can look forward to a reduction in the amounts they pay as interest on loans because according to the Vice President, Dr. Mahamudu Bawumia, measures have been put in place to formalize the Ghanaian economy.
The average interest rate as at September 2017, was at 29% with banks citing the high risk of loan defaulters as a major factor contributing to the high interest rate.
South African banks charge an average of 10.25%, according to figures from their central banks.
[contextly_sidebar id=”QUQJoP51O4u8SzCjXTTgyToUiyDe9txd”]Speaking at the 21 st National Banking Conference, organized by the Charted Institute of Bankers, in Accra on Tuesday November 28, 2017, Vice President Bawumia explained that, Ghana has one of the highest mortgage-to- income ratios in the world, and high interest rates because of the largely informal nature of her economy, and the reforms being undertaken by the Nana Akufo-Addo government are meant to address this challenge.
Dr. Bawumia, who is a former deputy governor of the Central bank, said banks are unable to lend at low rates because of the risks associated with lending to an unknown quantity, hence Government’s decision to introduce measures such as the National ID card and the Digital Property Addressing system to make it easier to identify and trace borrowers and thereby reduce the risk premium.
“As bankers, we’ve always realized that high interest rates makes it difficult for customers to pay, and it makes the banking system very fragile. Banks face many problems. The risk that customers present: they come to you, you don’t know what their history is, there is no unique ID for an individual customer; you cannot tell. The credit reference system is not really robust so you don’t know exactly what their history is, how many banks they’ve taken loans from and they haven’t paid, whether there’s been a change of name in the middle; you are presented with an unknown quantity and sometimes somebody opens an account today and they want to borrow money that same afternoon.”
“The risk is quite high…because you are dealing with depositors’ funds, but you don’t know who they (borrowers) are, and you don’t know where they live, so we (government) basically said you need to at least put these fundamentals in place before you can really expect a sustainable decline in interest rates that can be driven by proper risk assessment through credit rating agencies and so on.”
He added that these problems among others, compelled government to employ technology in a bid to tackle the challenge.
“This is what is driving the issue of the national ID card. The National Digital Property Address System has also been launched. Preparations are underway for the mass issuance of the national ID card so that we can really trace customers, we can build a robust credit reference agency and together these will be very fundamental to reducing interest rates and strengthening the stability of our financial system and our banking system,” he added.
The Vice President urged banks to play a greater role in growing and strengthening Ghana’s economy, while assuring of government’s commitment to ensuring macro-economic stability.
“I challenge banks to be relevant to the economy by extending loans to the productive sectors particularly the Small and Medium Scale Enterprises. As a government, we are committed to improving the economy through the pursuit of prudent financial management policies.
“The future of banking is bright, but we have a lot to do together as key stakeholders in the industry. Let us pursue banking reforms and policies that will strengthen prudential and regulatory oversight to maintain a resilient banking sector.”
The 21 st National Banking Conference is under the theme “Building a Robust and Sustainable Banking System in Ghana”.
It is being attended by heads of banking institutions in Ghana, as well as current and former Governors of the Bank of Ghana.