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BOG directs banks to build a profile of borrowers

The Bank of Ghana (BoG) has directed all banks to develop and build credit profiles of their customers to help the banks price their loans appropriately.

The measure is aimed at deepening transparency in the determination of the lending rates of banks to bring down interest charges on loans.

The First Deputy Governor of the BoG, Dr Maxwell Opoku-Afari, who gave the directive at a two-day financial training workshop for members of Journalists for Business Advocacy (JBA) in Accra, also said the measure would promote responsible credit behaviour by borrowers.

“We want people to have different lending rates based on their credit risks,” he further explained.

Part of the profiles of individuals to be assessed 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.

“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 risk premium is the major factor banks use in determining interest margins.

Commercial banks incur heavy credit risks in their operations, as evidenced by the sheer quantum of non-performing loans on their books.

Few countries in sub-Saharan Africa have NPL ratios that high and banks in Ghana use this to rationalise the high-interest margins they demand.

The BoG has, since 2017, cut its benchmark Monetary Policy Rate by 1,000 basis points, from 26 to 16 per cent, as part of a deliberate easing of its monetary policy stance.

However, base lending rates of commercial banks have not fallen by nearly as much, and average lending rates have fallen even more slowly, by barely 600 basis points

by Naa Anyema

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