Managing Director of GCB Bank, Farihan Alhassan, has cautioned that the low-interest-rate environment could trigger a wave of risky lending if banks fail to exercise discipline.

Speaking on Joy News’ PM Express Business Edition, he said while declining rates present opportunities, they also carry the danger of subprime lending.

“So a low-interest regime also comes with its own problems, coupled with the directives of the Central Bank, which is invariably forcing banks to lend to the real sector. So if you're not careful, you're going to have subprime loans, so there needs to be that balance.”

He stressed that regulatory pressure and internal risk controls must work together to prevent a repeat of past loan quality deterioration.

“But I think what would address that, again, is the fact that the central bank has actually cautioned that banks whose NPLs go above a certain threshold, the replication is for them,” he said.

According to him, such measures will compel banks to stay within prudent lending limits and focus on loan quality rather than volume.

“So all those things will help banks stay within a certain appetite in terms of how many loans they can give out to the real sector, and they will pay attention to the quality of loans that they are giving out.

"So you don't just create assets today, and then you come back to raise provision on this asset tomorrow.”

Mr Alhassan noted that GCB Bank has strengthened its internal risk management systems, including tighter credit screening and proactive monitoring.

“We have raised our underwriting standards as a bank, and we have early warning meetings that we are able to identify which loans we think will be problematic in the long term. If we have to restructure, we do that.”

He added that the bank remains cautious about where it deploys capital.

“We play in areas that we understand, and if we don't understand your sector, there's absolutely no way we're going to play in that sector.”

He insisted that lending decisions are subject to strict internal scrutiny.

“We have standards that would go through as a credit committee to be sure that this loan ticks that box.”

Despite the risks, he acknowledged that the current environment offers genuine opportunities for credible businesses.

“But beyond that is the fact that banks will now not put their assets or their deposits in government instruments, because the earnings there are very low.”

This shift, he explained, will push banks toward private sector lending.

“So, good businesses would have a good field day to operate. They would have access to credits that they probably won’t have had in the past, and would have the ability to actually pay back these loans, because the interest rates are quite low.”