The Ghana Association of Banks (GAB) wants a more robust legal framework to address loan defaults, arguing that defaulters must face stringent consequences to deter others from exploiting loopholes in the judicial system.
John Awuah, Chief Executive Officer of GAB, stressed the need to send a strong signal that loan defaulters will find no hiding place in the courts.
According to him, the persistent challenges with loan recovery continue to undermine the financial sector’s ability to lend freely – contributing to higher interest rates and a constrained credit environment, especially for individuals and businesses who need the facilities the most.
“In Ghana, it is not uncommon for a customer who has borrowed money and is being chased by a bank for payment to retort that the bank should take the matter to court: not because they have a genuine case, but because they know the court system will tolerate and accommodate them. We must make it hostile for recalcitrant and deliberate loan defaulters – people who borrow with no intention of repaying,” Mr. Awuah said in an exclusive interview with B&FT.
His concerns come at a time when private sector credit, despite modest recovery, is yet to reach it’s pre-2022 macroeconomic crisis levels.
The Bank of Ghana’s Monetary Policy Committee (MPC), in its statement following its 122nd meeting on January 27, noted that nominal private sector credit growth increased to 26.3 percent in December 2024 compared to 10.7 percent in December 2023.
In real terms, credit to the private sector expanded by two percent, marking a significant turnaround from the 10.2 percent contraction recorded in the previous year.
Despite this progress, the industry’s Non-Performing Loans (NPL) ratio remains a pressing issue, rising to 21.8 percent in December 2024 from 20.6 percent a year earlier.
Mr. Awuah described this as a major concern, explaining that high impairments discourage lending and weaken banks’ ability to support economic growth.
“Impairment is a cancer to the industry. When you give ten loans and make good money on nine but one goes bad, everything made on the nine disappears. That’s why banks are cautious when lending. It’s not about high interest rates generating profits – rather, it’s about managing risks and high interest rates increases the probability of default,” he explained.
The situation, he added, is exacerbated by systemic weaknesses that make loan recovery a lengthy and often futile process.
“There is a Borrowers and Lenders Act which stipulates that if a collateral is registered in the collateral registry and there is a default, the lender only needs to notify the court and enter execution. This process should take two to three months, but instead we see cases dragging on for two to three years due to unnecessary legal delays,” he stated.
To address these challenges, GAB’s CEO stated that the Association has been working closely with the judiciary to ensure that judges have a comprehensive understanding of financial and banking matters. The Association, in collaboration with the Judicial Training Institute, has conducted training programmes for judges including those at the Commercial Courts, the Court of Appeal and the Supreme Court.
“We took them through a comprehensive training programme on the Global Master Repurchase Agreement (GMRA) process because when financial disputes arise, the courts need to understand the documentation involved to be able to adjudicate the dispute,” Mr. Awuah explained.
“We also conducted refresher-training on the Borrowers and Lenders Act to address the misapplication of laws that often leads to delays in loan recovery,” he added.
As part of broader judicial reforms, GAB has also played a key role in reviving the Court Users’ Committee, a platform that brings together judges, lawyers, banks, and businesses to discuss ways to streamline the judicial process for financial cases.
The CEO commended the Chief Justice for her swift action in ensuring the Committee resumed operations, describing it as a crucial step in improving the efficiency of court proceedings related to loan defaults.
“Not every time are banks right, and not every time are borrowers right. The question is, how do we make the legal process more efficient so that those who are right get justice quickly? We want a system where banks can recover funds on time and reinvest them in the economy instead of waiting years for legal resolutions,” he noted.
Beyond judicial reforms, the banking sector has also invested in improving mortgage and collateral registration to facilitate loan recovery. GAB has collaborated with the Lands Commission to create a dedicated corporate office for banks and other corporate entities, ensuring a seamless process for registering mortgages and other financial transactions.
“We built a fully-equipped office complex for the Lands Commission, complete with computers, scanners and printers, solely for commercial transactions related to banks. This eliminates long queues and the missing documents syndrome, which have been major bottlenecks in the past,” Awuah stated.
Despite these interventions, Ghana’s financial sector continues to grapple with a weak credit culture that makes lending risky.
Mr. Awuah stressed that unlike in other jurisdictions where a borrower’s financial behaviour is fully documented, Ghana lacks a robust credit scoring system.
“In other countries, if you default on your rent you cannot secure a bank loan. If you owe taxes, you cannot access credit. Every financial behaviour is tracked and scored. But in Ghana, banks lend based on partial knowledge of a borrower’s financial exposure. We don’t know if a business owes suppliers or if all their inventory is financed through unpaid suppliers’ credit,” he lamented.
The absence of a centralised credit scoring system has led to cases where borrowers with a history of default continue to secure loans from multiple financial institutions. According to Awuah, some individuals take loans just before relocating abroad, using the money to settle their families while leaving their debt unpaid.
“Most of the doctors and nurses who have migrated from this country, as soon as they are about to travel, approach banks for loans and then disappear. These are real challenges banks are facing, yet people keep asking why banks are not lending more,” he observed.
The CEO also highlighted the risk posed by government contractors, who frequently secure loans based on contracts that remain unpaid for years. “When we hear on the radio that contractors have not been paid for two or ten years, what it really means is that banks have not been paid for two or ten years. The contractor takes the money, but the real lender is the bank,” he said.
With an NPL ratio exceeding 21 percent, Mr. Awuah noted that this is not an ideal time for banks to be aggressive in lending – especially given the high interest rate environment. “It’s really not a time for banks to be bullish on lending when interest rates are not favourable for the financial system. We need to address systemic weaknesses before we can expand credit meaningfully,” he cautioned.
The issue of non-performing loans remains a major concern, particularly in the SME sector. While personal loans tend to have lower default rates due to their payroll-based structure, SMEs, government contractors and greenfield agricultural ventures contribute significantly to the high NPL ratio.
“The SME sector is a big piece of the puzzle. Many of them struggle with cash flow issues and by the time a bank is chasing them for repayment, they simply cannot pay. In agriculture, especially greenfield projects, challenges like droughts and market fluctuations make loan recovery even more difficult,” he explained.
Addressing these issues requires a collective effort, Mr. Awuah noted, urging all stakeholders to take an active interest in reforming Ghana’s credit culture. “If we clean up the credit system, make people accountable for their financial obligations and strengthen judicial enforcement, banks will have more confidence to lend and interest rates will naturally come down,” he emphasised.
GAB has pledged to support the newly-launched credit scoring company in Ghana, My CreditScore, which aims to build a database of borrowers’ credit histories. Awuah believes this will be a game-changer in distinguishing responsible borrowers from habitual defaulters.
“We must be able to separate the good from the bad. If we know a borrower’s full financial exposure, we can price credit accordingly. A clean credit system benefits everyone – banks, businesses and the entire economy,” he further stated.
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