Bad borrowers to be exposed

…as credit records sharing set to be enforced

Recalcitrant borrowers from financial institutions in Ghana will soon be unable to hide their poor loan repayment records and inordinate indebtedness in order to secure further credit from unknowing lenders as new legislation is about to be passed which will compulsory enforce the provision of credit data on borrowers by their creditors and the use of such data by all other lenders in their loan assessments.

Credit reporting regulations drafted by the Bank of Ghana are expected to be passed into law by Parliament this year, possibly as early as the end of September. The regulations were submitted by the central bank to the Minister of Finance, Ken Ofori-Atta for onward submission to Parliament for legislative action in accordance with section 60 of the Credit Reporting Act 2007 (Act 726).

The regulations, which aim to incorporate and enforce compliance with best practices in Ghana’s credit reporting system, make provision for data submission rules, data protection and quality rules, credit bureau corporate governance requirements, dispute resolutions and sanctions for non-compliance. The draft regulations also provide for additional sources of data for the credit bureaus such as utility companies, telecommunications companies, retailers, and the Student Loan Trust among others.

Legislative backing by Parliament for the enforcement of the provisions of Act 726, including severe penalties for non-compliance is expected to force financial intermediation companies to share information on the credit track records and indebtedness of all their customers, and also force them to use such data as it is received. Currently, although compliance is rising by the year, it still falls far short of optimal, thus enabling defaulting borrowers to secure further credit from lenders other than those they already owe and are failing to repay.

While financial institutions are required by existing legislation to submit data on borrowers to the three licensed credit reference bureaus within 72 hours of entering into credit agreements and update the data monthly, compliance is lacking. In 2018 24 banks submitted data consistently up from  just 17 in 2017. Only 26 of the 140 RCBs submitted data consistently in 2018 and 16 of them did not submit any data at all. Similarly only 66 of the over 300 operational MFIs last year submitted any data of which just 23 submitted data consistently.

This situation helped propel the non-performing loans ratio of Ghana’s banking industry to a long term high of 23 percent by the first half of 2018 although it has since declined to below 20 percent due to a combination of aggressive loan recoveries by the banks and bad debt write-offs running into billions of Ghana cedis. Although accurate data with regards to the non performing loans ratios of the other genres of financial intermediaries – savings and loans companies, microfinance institutions, rural and community banks as well as specialized deposit taking finance houses – are not publicly available it is believed they are higher than that of the banking industry and are a major reason why billions of cedis in customer deposits remain in jeopardy.

According to the Bank of Ghana’s Credit Bureaus Industry annual report for 2018, there were 21,247,717 records – inclusive of both credit and non-credit information – in the database of credit bureaus by the end of 2018, comprising 20,596,835 individual records and 650,882 corporate records.

The central bank’s latest report identifies challenges facing the industry as poor data quality, inconsistent data submission, low usage of credit reports by lenders, and lack of sufficiently varied sources of data on borrowers. However it envisages that the impending new legislation with an effective sanctioning regime for non-compliance will force the financial intermediation industry to mend it ways in these regards.