The refusal of banks to submit the information of their borrowers to the credit bureau agencies is undermining the credit referencing system which was introduced by an Act of Parliament in 2007, the Bank of Ghana (BoG) has indicated.
The banks’ refusal to sign up to the system which is aimed at ensuring the easy tracking and assessment of the creditworthiness of borrowers follows fears that their competitors will poach their clients if they submit their information to the agencies.
This was disclosed by the Second Deputy Governor of the BoG, Mrs Elsie Awadzi, at the GRAPHIC BUSINESS/Stanbic Bank breakfast meeting in Accra. The meeting was on the theme: ‘Liquidity and insolvency management - Boosting the health of banking in Ghana.’
“When the Credit Bureau Act was enacted, we created a framework for licensing private credit bureau agencies and we have three which are licensed now. The law was very clear that to make the system work, every bank had to report on the credit behaviour of the customers; so all of them were supposed to sign up with a credit bureau agency,” she stated.
“At the same time, the Act required every bank, before giving a loan, to access the credit report of the applicant from the credit bureau agency and this is supposed to be part of the risk assessment.
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“The framework is there and these credit bureaus have been licensed and operating but the system has not worked the way it should because some of the banks are not complying,” she added.
She said the system was not going to work if all the banks did not comply.
“If we have half information, then we are not going to make a good assessment on borrowers. It is incumbent on everyone to fully participate in the system by reporting and assessing report of the customer,” she said.
Mrs Awadzi pointed out that the BoG had identified few gaps in the regulatory framework and was coming up with new regulations which it would soon take to Parliament to strengthen the credit bureau system.
She said the central bank would make it more incumbent on the banks to start reporting.
“We are going to make it stricter and more effective,” she stressed.
Credit bureau system
The Act was introduced in 2007 to ease credit referencing and also reduce information irregularity, which had characterised the financial system.
This became necessary due to the high loan default rate in the country which was crippling most banks and other financial institutions.
It had also been observed that some individuals were using the same collateral or documents to apply for loans in different banks and refusing to honour their obligations, leaving high non-performing loans (NPLs).
Under the Act, credit bureau agencies were established to collect information from the banks and also provide consumer credit information on individual consumers for a variety of uses.
The information that are expected to be collected by the agencies include the amount of the loan or other facility granted to the person from the financial institution; the date on which the loan was made and the dates for payment of the principal and the interest as agreed.
Others include information on the composition and the types of collateral which secured the debt obligation and the sum of the outstanding loans, including contingent liabilities extended to the person by the financial institution.
A banking consultant, Nana Otuo Acheampong, expressed concern about the exemptions that the regulator often gave to the banks in terms of publishing their financials.
He said the latest annual banking survey produced by the PwC banking survey and which gave an idea of banks that had submitted their accounts showed that 30 out of the 36 banks had their accounts published, while the six were given exemptions.
“These exemptions must be looked at by the regulator because as we speak, there are still some banks that have not published and so it becomes difficult for the ordinary investor, who is in the dark, to see the data points,” he stated.