Ghana Association of Banks threatens to suspend public sector loans

The Ghana Association of Banks (GAB) has warned it may suspend new credit facilities to public sector workers due to persistent delays by the Controller and Accountant-General’s Department (CAGD) in remitting loan repayments. Commercial banks are currently facing significant financial strain, with three months of salary deductions still outstanding. The association indicated that it can no longer sustain lending under a scheme where the agreed-upon repayment mechanism is not functioning reliably.

Speaking at the GAB’s 43rd Annual General Meeting, Chief Executive Officer John Awuah explained that while the Ministry of Finance has previously intervened, the issue remains unresolved. These delays have persisted for over a decade but have recently reached a critical point, hampering the ability of banks to manage their loan portfolios. Mr. Awuah noted that a suspension would primarily impact essential workers, including teachers, nurses, and doctors, who rely heavily on these payroll-deducted loans for their personal financial needs.

The potential suspension is also tied to a broader directive from the Bank of Ghana (BoG) to improve the health of the banking industry. The central bank has mandated that commercial banks reduce their non-performing loans (NPLs) to below 10% by next year. High NPL ratios, exacerbated by government-linked repayment delays and instances of wilful default, are forcing banks to tighten lending criteria to safeguard the industry's stability.

Discussions between the GAB and the CAGD are currently underway to resolve the impasse before the proposed suspension takes effect in the coming weeks. The association is also working with the Bank of Ghana on the framework of the Lenders and Borrowers Act to address the broader issue of defaults. If a resolution is not reached, the move could significantly limit the credit options available to thousands of government employees across the country.