Vice President Dr Mahamudu Bawumia has said the digitisation programme embarked upon by government at the various public institutions would ultimately result in the reduction of interest rates on loans.
He explained that the digitisation programmes like the National Identification System and the National Digital Property Addressing System would make it easier for banks to identify and trace creditors, which would reduce the risk of lending.
The average interest rate of 29 per cent on loans in Ghana as of September, 2017, is among the highest in Africa, with banks citing the risk of defaulting by creditors as the major reason.
In contrast, creditors in Botswana pay about seven per cent, while Mauritian banks charged an average of 8.5 per cent. South African banks charged an average of 10.25 per cent, according to figures from their Central Banks.
Speaking at the 21st National Banking Conference of the Chartered Institute of Bankers, in Accra, Vice President Bawumia noted that Ghana had one of the highest mortgage-to-income ratios in the world and high interest rates because of the informal nature of the economy.
Therefore, he said, government’s digitisation reforms were intended to address these challenges and formalise the economy to improve financial inclusion.
Dr Bawumia noted: “Banks are unable to lend at low rates because of the risks associated with lending to an unknown quantity, hence government’s decision to introduce measures such as the National ID card and the Digital Property Addressing System will make it easier for banks to identify and trace borrowers and thereby reduce the risk premium.
“As bankers, we have always realised that high interest rates makes it difficult for customers to pay, and it makes the banking system very fragile.
“Banks face many problems, especially the risk customers present when they come to you, you don’t know what their history is,there is no unique ID for an individual customer”.
The Vice President said the credit referencing system in the country was not robust therefore upon completion of the digitisation reforms; it would boost the confidence of bankers to lend at lower interest rates because they could easily identify creditors.
“If we cannot uniquely identify individuals in our economy or and also uniquely identify where they live it becomes a very chaotic environment to do banking and therefore the risk premium will continue to be high although we are bringing down the fiscal deficits and bringing down the Treasury Bill rate, “Then we’re not going to see the impact on the lending rate in particular and made it tougher for creditors to pay back the loans, and worsen the fragility of the banking system,” Dr Bawumia pointed out.
He said these were the factors driving the National ID card and the National Digital Property Addressing System because they were fundamental to reducing interest rates and strengthening the stability of the banking system.
The Vice President urged banks to continue playing crucial roles in growing the country’s economy, while government institute measures to stabilise the macro-economy and consolidate the gains made on the fiscal deficit.
“I challenge banks to be relevant to the economy by extending loans to the productive sectors particularly the small and medium scale enterprises, and as a government, we are committed to improving the economy through the pursuit of prudent financial management policies.
“The future of banking industry in the country is bright but we have a lot to do together as key stakeholders in the industry. Let us pursue banking reforms and policies that will strengthen prudential and regulatory oversight to maintain a resilient banking sector,” he emphasised.
The conference held on the theme: “Building a Robust and Sustainable Banking System in Ghana” attracted top echelon of financial institutions in the country.