Total enquiries by financial institutions with credit reference bureaus reached 2.6 million, a Credit Referencing Activity Annual Report 2018 by the Bank of Ghana has said.

This represents 18 per cent jump from what was recorded for 2017.  

Based on these enquires, Individuals accounted for about 95 per cent of the searches, with corporate taking up the remaining five per cent.

Based on the Bank of Ghana report most of these institutions wanted to establish the creditworthiness of individuals, ability to recover their loans, status persons that have guaranteed a loan.

Why Credit Reference Bureaus?

The Act establishing the Credit Reference Bureau, Credit Reporting Act, 2007 requires financial institutions to submit data on borrowers to credit reference bureaus within 72 hours of entering into credit agreements and update the status of the facilities on monthly basis.

This requirement mandates all financial institutions to engage credit bureaus on a monthly basis and conduct credit searches as and when required.

Twenty four (24) banks submitted data consistently to all credit bureaus in 2018 compared to seventeen (17) banks in 2017. 

The three licensed credit bureaus in 2018 began the process of forming an association to promote unity, trust and pursue a common agenda of developing the credit reporting industry. 

Bank of Ghana considers the credit referencing system a critical infrastructure in the quest to develop the credit market. For example, strengthening the credit referencing system is part of the strategies of the Bank to reduce the high Non-Performing Loans (NPLs) in the banking sector

Use of Credit Reference Bureaus

 The Bank of Ghana data showed that the use of credit bureau services by financial institutions in their operations continued to increase in spite of the banking sector challenges experienced in the year under review.

A total of 2,629,400 enquiries were conducted on the databases of all credit bureaus by financial institutions. This represented an increase of 18% from last year’s position of 2,222,311 enquiries.

Enquiries by Financial Institutions

Enquiries conducted by Savings and Loans (S&Ls), Finance House (FHS), and other BOG licensed Non-Bank Financial Institutions (NBFIs) accounted for 59.6% of total enquiries, maintaining a lead in the use of credit referencing services. The increasing numbers of payroll lending in this subsector account for the increased usage.

The Universal Banks also accounted for 28% of the total enquiries following the S&Ls, FHs and NBFIs. This represents an increase of 18% from last year position of 227,956 enquiries. Rural and Community Banks recorded an increase in enquiries from 118,396 in 2017 to 212,553 in 2018. This represented 8% of total enquiries in the year under review.

 Credit Information in Credit Bureau Database

The Credit bureaus recorded a total of 6,894,026 number of records with credit information as at December 2018. This is also made up of 6,530,674 individual credit records and 363,352 corporate credit information. 

Enquiries made on individual borrowers/customers of financial institutions accounted for 95% of total enquiries in 2018. Enquiries about corporate customers, on the other hand, accounted for 5% of total enquiries.

Challenges with operations of the Credit Bureaus

Despite the pick in enquires from financial institutions, the operations of these institutions continue to face some challenges.  

According to the Bank of Ghana despite the work with the credit bureaus, challenges still persist.  A number of financial institutions continue to submit data to credit bureaus that are below the standard requirements of the Bank of Ghana.

For instance, some data submitted to credit bureaus lacked critical demographic information such as Identity Information (ID), Date of Birth and residential addresses of borrowers. Where provided, some dates of birth were incorrect. Critical financial information such as outstanding balances and transaction dates were sometimes omitted from records submitted to credit bureaus.  

A number of such omissions were as a result of non-compliance with Know Your Customer (KYC) procedures and lack of review or monitoring of data before submission to credit bureaus.  

It is anticipated that data providers would adhere strictly to the data requirements of credit bureaus when an effective sanctioning regime is duly enforced, particularly as prescribed in the new Regulations to be passed.

Low Usage of Credit Report

Contrary to the provision of Section 26 of the Credit Reporting Act, 2007 (ACT 726) which mandates all financial institutions to obtain credit reports some of the institutions are still not complying.  The low usage of credit reports also emanates from the lack of understanding by financial institutions on the use of credit reports.

The Bank of Ghana noted that  “ For instance, some financial institutions, especially rural banks, conduct credit searches only on their commercial customers or first-time borrowers, or once on regular customers”.