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More banks desert mortgage financing

BY: Emmanuel Bruce
Dr Ernest Addison, Governor, BoG
Dr Ernest Addison, Governor, BoG

Six more banks have joined the list of banks in the country that do not offer mortgage loans to customers, latest data from the Bank of Ghana (BoG) has indicated.

The Average Percentage Rate APR and Interest Rate (AI) of banks as of May 31, listed the Agricultural Development Bank (ADB), GN Bank, Standard Chartered Bank, United Bank of Africa (UBA), uniBank, and Zenith Bank as the latest banks that have shunned mortgage financing.

Already, Access Bank, Capital Bank, Energy Bank, Fidelity Bank, First Atlantic Bank, First National Bank, GT Bank, NIB, Omnibank, Societe Generale Bank, Sovereign Bank and the Universal Merchant Bank do not offer mortgage loans, bringing the number of banks that have shunned mortgage financing in the country to 18.

The data also revealed that Ghana Commercial Bank and the Royal Bank charged 40.3 per cent and 35.5-40.5 per cent interest on mortgage loans, the highest in the sector.

The Bank of Baroda and Stanbic Bank charged the lowest interest rates at 22- 28 per cent and 25.3 per cent, respectively.

The Bank of Africa, Barclays Bank, HFC, Ecobank and UT Bank were also charging 36.6 per cent, 34.2-38.5 per cent, 31.1 per cent, 34.1 per cent and 33.2 per cent respectively.

The industry average of interest rates that consumers were paying on mortgage loans stood at 33.2 per cent.

Lack of long-term funding

A Former Deputy Governor of the Bank of Ghana, Mr Emmanuel Asiedu- Mantey, speaking in an interview with the Graphic Business, said the banks were shunning the sector due to their inability to secure long-term funding.

“Mortgage financing requires long-term funding and in Ghana, what the commercial banks have is short-term funding, which is from individuals’ deposits,” he said.

“When you deposit your savings into an account, that is short-term funding because you can draw on it anytime but mortgage requires long-term funding so the banks are scared to invest their short-term funds into this sector,” he added.

Mr Asiedu-Mante also pointed out that the fear of default was another reason why banks were not interested in the sector.

“One needs to remember that the money that the bank is lending is not their money but depositors’ money and if the bank takes that money and gives it to an estate developer and it doesn’t come back, then the bank will be caught in hot waters,” he noted.

He said for banks to feel comfortable in lending to the sector, there must be some security that the bank can fall on when there is default.

“Banks also need access to long-term funding and until this is made available it is going to be very difficult for them to lend to the sector,” he said.

Unattractive products

The Executive Secretary of the Ghana Real Estate Development Association (GREDA), Mr Samuel Amegayibor, also told the Graphic Business in an interview that the banks were shunning the sector due to the limited number of mortgage products on the market, adding that the ones that were available were also not attractive.

He said the mortgage companies and the banks, therefore, had to design more and attractive products that were aligned to the earning and income capacity of Ghanaian workers.

“Even if the banks make the monies available for mortgage financing, how many people can afford it or how many people will even qualify for it? They have to review their products and develop it to suit the salary structure and earning capacity of the public,” he stated.

He also urged the banks to support the mortgage companies to design products that would target the informal sector.

“There is a lot of money in the informal sector but all mortgage products are targeted at the formal sector and salaried workers,” he pointed out.

Housing deficit

Mr Amegayibor also believed the lack of affordable mortgage products on the market was one of the reasons for the increasing housing deficit.

He said most of the housing deficits were coming from low to middle-income workers who were finding it difficult to acquire decent accommodation due to the high cost of houses in the country. He believed that the decision of some banks would only worsen the situation.

He, therefore, urged the banks to support the industry to come out with well-structured mortgage products to address the challenges of people in the low-income bracket.

The country’s housing deficit keeps widening as many citizens have been unable to afford decent accommodation.

It is estimated that the country’s population could reach 32.2 million in 2020, with about 57 per cent living in urban communities, a situation that will compound the current housing deficit and require concerted effort.

Currently, the housing deficit is estimated at 1.7 million units -- a figure that has been thrown into doubt by experts who contend that it is possibly more -- with an annual growth rate of 70,000 housing units.

GREDA also estimates that about 50 per cent of Ghanaians live in sub-standard housing and various unsuitable structures.

The lack of planning and uncoordinated effort, poor policies and the recent imposition of VAT, difficulty with land acquisition, as well as lack of cheap sources of funds, among others for private sector developers to tap into are some of the major challenges bedevilling the sector.