National ID will cut interest rates - Dr. Bawumia

Vice-President Dr Mahamudu Bawumia has indicated that the revamped National Identification System and the Digital Property Address technology will help in achieving lower interest rates on loans.

Dr Bawumia, who was speaking at the 21st National Banking Conference, organised by the Chartered Institute of Bankers (CIB) in Accra on Tuesday November 28, 2017, explained that the two systems introduced by the New Patriotic Party (NPP) government will address the challenge of identifying and tracing borrowers and cut risk.

He bemoaned the high mortgage-to-income ratio and high interest rates in Ghana which he attributed to the informal sector which forms the large part of the economy.

“The National Digital Property Address System has also been launched. Preparations are underway for the mass issuance of the national ID card so that we can really trace customers, we can build a robust credit reference agency and together these will be very fundamental to reducing interest rates and strengthening the stability of our financial system and our banking system,” he said.

He continued: “As bankers, we’ve 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. The risk that customers present: they come to you, you don’t know what their history is, there is no unique ID for an individual customer; you cannot tell,” he stated.

“The credit reference system is not really robust so you don’t know exactly what their history is, how many banks they’ve taken loans from and they haven’t paid, whether there’s been a change of name in the middle; you are presented with an unknown quantity and sometimes somebody opens an account today and they want to borrow money that same afternoon.
“The risk is quite high that you’re facing because you are dealing with depositors’ funds but you don’t know who they (borrowers) are, and you don’t know where they live, so we (government) basically said you need to at least put these fundamentals in place before you can really expect a sustainable decline in interest rates that can be driven by proper risk assessment through credit rating agencies and so on.

“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, and even though you are bringing down the deficits and bringing down the T bill rate, you are not going to see the impact on the lending rate in particular. When you don’t see the impact on the lending rate, it means that it makes it tougher for your customers to pay back the loans in general, and so the fragility of the banking system is there,” Dr. Bawumia stated.

He further challenged banks to be relevant to the economy by extending loans to the productive sectors particularly the Small and Medium Scale Enterprises (SMEs) adding “as a government, we are committed to improving the economy through the pursuit of prudent financial management policies”.

For him, “the future of banking 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.”