Accra, Nov. 29, - Vice President
Dr Mahamudu Bawumia has said the digitisation programme embarked upon by
government at the various public institutions would ultimately result in the
reduction of interest rates on loans.
He explained that the
digitisation programmes like the National Identification System and the
National Digital Property Addressing System would make it easier for banks to
identify and trace creditors, which would reduce the risk of lending.
The average interest rate of 29
per cent on loans in Ghana as of September, 2017, is among the highest in
Africa, with banks citing the risk of defaulting by creditors as the major
reason.
In contrast, creditors in
Botswana pay about seven per cent, while Mauritian banks charged an average of
8.5 per cent. South African banks charged an average of 10.25 per cent,
according to figures from their Central Banks.
Speaking at the 21st National
Banking Conference of the Chartered Institute of Bankers, in Accra, Vice
President Bawumia noted that Ghana had one of the highest mortgage-to-income
ratios in the world and high interest rates because of the informal nature of
the economy.
Therefore, he said, government’s
digitisation reforms were intended to address these challenges and formalise
the economy to improve financial inclusion.
Dr Bawumia noted: “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 will make it easier
for banks to identify and trace borrowers and thereby reduce the risk premium.
“As bankers, we have always
realised that high interest rates makes it difficult for customers to pay, and
it makes the banking system very fragile.
“Banks face many problems,
especially the risk customers present when they come to you, you don't know
what their history is,there is no unique ID for an individual customer”.
The Vice President said the
credit referencing system in the country was not robust therefore upon
completion of the digitisation reforms; it would boost the confidence of
bankers to lend at lower interest rates because they could easily identify
creditors.
“If we cannot uniquely identify
individuals in our economy or and also uniquely identify where they live it
becomes a very chaotic environment to do banking and therefore the risk premium
will continue to be high although we are bringing down the fiscal deficits and
bringing down the Treasury Bill rate,
“Then we’re not going to see the
impact on the lending rate in particular and made it tougher for creditors to
pay back the loans, and worsen the fragility of the banking system,” Dr Bawumia
pointed out.
He said these were the factors
driving the National ID card and the National Digital Property Addressing
System because they were fundamental to reducing interest rates and
strengthening the stability of the banking system.
The Vice President urged banks to
continue playing crucial roles in growing the country’s economy, while
government institute measures to stabilise the macro-economy and consolidate
the gains made on the fiscal deficit.
“I challenge banks to be relevant
to the economy by extending loans to the productive sectors particularly the
small and medium scale enterprises, and as a government, we are committed to
improving the economy through the pursuit of prudent financial management
policies.
“The future of banking industry
in the country 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,” he emphasised.
The conference held on the theme:
“Building a Robust and Sustainable Banking System in Ghana” attracted top
echelon of financial institutions in the country.
GNA
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