Ghanaians can look forward to a reduction in interest on loans when the various measures aimed at formalising the economy are completed, Vice President has said.
Dr Mahamudu Bawumia explained that the country 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.
He assured that the reforms being undertaken by the Nana Akufo-Addo government are meant to address this challenge.
The average interest rate of 29% on loans in Ghana as at September 2017 is among the highest in Africa, with banks citing the risk of default as a major factor.
In contrast, borrowers in Botswana pay about 7%, while Mauritian banks charge an average of 8.5%. South African banks charge an average of 10.25%, according to figures from their central banks.
Speaking at the 21st National Banking Conference, organized by the Charted Institute of Bankers, in Accra on Tuesday, Dr Bawumia, who is a former Central banker, said banks are unable to lend at low rates because of the risks associated with lending to an unknown quantity.
He said that explains 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 realised that high-interest rates make it difficult for customers to pay, and it makes the banking system very fragile.
“The credit reference system is not really robust so you don't know exactly what their [customers] 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.
“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...when you don't see the impact on the lending rate it means that it makes it tougher for your customers to pay back the loans in general, and so the fragility of the banking system is there,” he added.
Dr Bawumia said preparations are underway for the mass issuance of the national ID card to make it easy to 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 said.
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 macroeconomic 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 21st National Banking Conference is under the theme “Building a Robust and Sustainable Banking System in Ghana” and was attended by heads of banking institutions in Ghana, as well as current and former Governors of the Bank of Ghana.