Banks threaten to suspend loans to public sector workers over delayed repayments

The Ghana Association of Banks (GAB) is considering suspending new loans to public sector workers whose salaries are processed through the Controller and Accountant-General’s Department (CAGD) over persistent delays in remitting loan repayments deducted from their salaries.

The move comes as the Bank of Ghana pushes banks to reduce their non-performing loan (NPL) ratio to 10%.

Speaking at the association’s 43rd Annual General Meeting in Accra, Chief Executive Officer of the Ghana Association of Banks, John Awuah, said the banking industry could take the step in the coming weeks if the outstanding payments are not resolved, adding that banks could no longer continue absorbing the financial losses arising from the delays.

“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.

He explained that the problem had persisted for years, with banks struggling to receive money deducted from the salaries of public sector workers to settle their loans.

John Awuah said the delays were affecting the banking industry’s ability to manage its loan portfolios and could result in avoidable impairments that reduce 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.

According to him, the problem has persisted for more than a decade, despite repeated engagements with the relevant authorities.

He said the association had previously considered suspending the lending arrangement but held back after the Chief Director of the Ministry of Finance intervened and pledged to help resolve the matter.

John Awuah, however, said the delays had resurfaced, with banks awaiting three months of outstanding remittances as of October.

“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,” he said.

He added that public sector workers had already had the relevant loan repayments deducted from their salaries, leaving the CAGD to transfer the money to the banks.

“They have been paid, which means that they have settled the loan. So it’s just left with the Controller to also pass on this disbursement that has already been taken from the salaries of public sector workers to be channelled to the banks,” he said.

Mr Awuah said the association hoped the outstanding payments would be settled to prevent the suspension and allow banks to continue extending credit to public sector employees, including teachers, nurses and doctors.

He also identified wilful loan defaults as a major concern for the industry, arguing that reducing bad loans was necessary to improve lending conditions.

Mr Awuah cautioned against comparing Ghana’s lending rates with those of neighbouring countries without considering their non-performing loan ratios, which he said were among the lowest in parts of the sub-region.

He maintained that resolving the delays in remitting payroll deductions would help banks sustain lending and support the financing needed for economic growth.

The association hopes the CAGD will take steps to clear the outstanding arrears and prevent a suspension that could affect public sector workers seeking new loans.

CitiNewsRoom