Banks have intensified their search for collaterals from businesses and loan applicants in a bid to reduce growing number of non-performing loans (NPLS) in the banking sector that had hit GH¢ 6.2 billion as of December 2016.
The move is to tighten the loose ends in the loan application process that has seen the banking sector record a high default rate in recent times.
A Graphic Business enquiry at the Collateral Registry, a wing of the Bank of Ghana, indicates that between December 2015 and December 2016, commercial banks have conducted a total of 49,532 searches on businesses and individual loan applicants.
Hitherto, several banks were not subscribing to the Credit Reference Bureau and the Collateral Registry, which are designed to principally register collaterals to secure credit facilities provided by lenders.
Growing default
However, a growing loan default rate in the banking sector has increased the appetite for the services of the collateral registry as a safeguard to secure the credit facilities extended by the banks.
Further checks at the Bank of Ghana reveal that the registry had logged in more than 368,408 properties as collaterals by December, last year since its inception in 2010.
Out of the 368,408 properties registered as collaterals, 326,234 of the collaterals were movable properties while 38,443 were immovable assets.
The Second Deputy Governor of the Bank of Ghana, Dr Johnson Asiama, told the Graphic Business in an interview on March 23, that the developments indicated growth in the level of patronage of the services of the registry and therefore, a positive outlook of the objective of the registry to ensure easy access to credit.
“We anticipate a much improved performance in the coming years, with the introduction of a much user-friendly web-based application and the passage of the new Borrowers and Lenders Act,” he said.
Teething problems
That, Dr Asiama said, was an attempt to respond to some of the teething problems in the credit market and gradually remove most of the hindrances impeding borrowers, in particular, Small and Medium-Size, Enterprises (SMEs) from accessing credit.
“Lenders can search and immediately have the results for prior charges on collaterals presented to them for credit,” he said.
“They can also use the registry for realisation, partially ending numerous litigations in court, as well as a reduction in NPLs on the books of most lending institutions,” he added.
Out of the 368,408 properties logged at the collateral registry, 913 assets were realised and successfully processed without a court order.
In 2016 alone, 255 institutions registered charges with the registry as against 163 recorded in 2015, representing an increase of 56.44 per cent.
However, Dr Asiama said despite these successes, the Bank of Ghana planned to review that Act, establishing the collateral registry to further tighten the “loose ends”.
“The provisions of the Act in its current form are inadequate and deficient due to the absence of certain crucial provisions,” he stated.
Limitation of the Act
The limitations in the Act, he said, defeated the broad objective of having a modern secured transactions regime that facilitated access to credit.
The Act establishing the collateral registry has come under criticism for the lack of provisions on priority of charges, effectiveness of security interest against third parties and the application of proceeds.
There are also concerns about inadequate provisions on enforcement of obligations of the borrower and credit transactions.
That, the second deputy governor believes, can plug the loopholes to secure the credit facilities of the banking sector that have seen its NPLs as of December 2016, up from 96.1 per cent in December 2015, while accounting for 85.1 per cent of total credit in December 2016 compared with 87.3 per cent of credit received in 2015.
The level of NPLs associated with the private enterprises was driven mainly by indigenous enterprises, which received 61.1 per cent of credit to private enterprises but accounted for 78.9 per cent of NPLs as at December 2016.
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