Banks threaten to suspend new loans to public sector workers

By: Winifred Fosua Agyekum

The Ghana Association of Banks (GAB) has warned that banks may suspend new loans to public sector workers whose salaries are processed through the Controller and Accountant-General’s Department (CAGD) if delays in remitting loan deductions persist.

The warning was issued by the Chief Executive Officer of the Ghana Association of Banks, John Awuah, at the association’s 43rd Annual General Meeting in Accra.

Mr Awuah said banks were considering the move because they had been forced to absorb financial losses resulting from delays in receiving loan repayments already deducted from workers’ salaries.

“We are now very hard-pressed, and we are likely going to take a very unusual step of suspending lending to all government workers whose salaries are processed to the Controller and Accountant General,” he said.

According to him, the delays have persisted for more than a decade despite several
engagements with relevant authorities.

He said banks were, as of October, awaiting three months of outstanding remittances from the CAGD.

“We are in October; we are in a race for three months. And banks are having to take the hit because the Controller has refused to do what they have to do,” Mr Awuah said.

He explained that the affected workers had already had the loan repayments deducted from their salaries, meaning the outstanding responsibility was for the CAGD to transfer the funds to the respective banks.

Mr Awuah said the situation was affecting banks’ loan portfolios and contributing to avoidable impairments, which reduced their profits.

“We want to see a stronger banking system, but we can’t have a stronger banking system when the profit we make is eaten away by impairments that are completely avoidable,” he said.

He noted that the proposed suspension could affect public sector employees, including teachers, nurses and doctors, who rely on bank loans.

The GAB CEO said the association hoped the outstanding payments would be settled to prevent the suspension and allow banks to continue providing credit to public sector workers.

He also identified deliberate loan defaults as another major challenge facing the banking sector, stressing that reducing non-performing loans was necessary to create better lending conditions.

Mr Awuah further cautioned against comparing Ghana’s lending rates with those of neighbouring countries without considering their respective non-performing loan ratios.

He said resolving the delays in transferring payroll deductions would help strengthen the banking sector and support continued lending to workers and businesses.