Mr Osei Gyasi, Head of Banking Supervision at the Bank of Ghana (BoG) has warned Savings and Loans Companies of mounting risks of Non performing Loans (NPL) that could hugely affect the sector.

Amidst the cautionary message from the Bank of Ghana to Savings and Loans companies, the central bank urged them to address the growing concerns surrounding escalating interest costs coupled with non-performing loans.

The Head of Banking Supervision noted that the potential financial risks could impinge on the sector’s profitability and growth.

Speaking at the momentous 20th anniversary celebration of Bayport Savings and Loans in Accra, Osei Gyasi expressed the central bank’s unease regarding the quality of financial assets within the industry.

With a clear sense of urgency, Osei Gyasi notified shareholders and customers that the Bank of Ghana has identified these worrisome developments, emphasizing the need for swift action.

Observing the recent marginal uptick in Bayport’s Non-Performing Loans stock, Osei Gyasi stressed that it is imperative for the company to proactively manage this issue, thereby bolstering asset quality and fortifying the institution’s profitability in the process.

Furthermore, Osei Gyasi advised Bayport to diversify its funding sources, aiming to reduce leverage ratios and interest costs, as overlooking this critical aspect could potentially expose the organization to crystallized financial risks.

Mr Osei Gyasi underscored these specific areas that demand attention from Bayport, as they hold the key to fostering increased profitability, instilling customer confidence, and empowering the institution to extend its lending capabilities, thereby contributing to overall economic growth.

Exploring Alternative Funding Avenues

In addition, the Head of Banking Supervision encouraged all financial service providers to explore alternative funding avenues as a strategic measure to alleviate the burden of exorbitant credit costs.

While acknowledging Bayport’s impressive growth trajectory, the Bank of Ghana drew attention to a decline in profitability, noting that the bank’s profit in 2002, amounting to ¢27.42 million, exceeded the figures reported in 2021.

Nevertheless, the central bank lauded Bayport’s remarkable 20-year journey, highlighting its substantial contributions to driving financial inclusion across the country.

Akwasi Aboagye, the Managing Director of Bayport, assured stakeholders of the company’s unwavering commitment to ensuring its long-term sustainability and compliance with the directives issued by the Bank of Ghana.

The anniversary celebration carries the theme of “Celebrating 20 years of needs met, opportunities created, plans accomplished, hopes realized, and dreams fulfilled.”

Meanwhile, the issue of NPL has been one of the main challenges facing the sector. Savings and Loans Companies are often faced with the incidence of their clients not repaying loans granted to them as a result of many factors. Key among these factors is the poor credit risk management practices by credit officers of these firms. They may give loans to sole proprietors who may not repay their loans for genuine and intentional reasons. Poor due diligence prior to the granting of loans and poor monitoring. Some of their clients may change their locations making it difficult and impossible to reach them.

Also, some of these Savings and Loans companies offer their depositors very high-interest rates on their deposits with them. These high-interest rates cannot be obtained from solid financial institutions. They can only be obtained from weak financial institutions that are struggling and sometimes microfinance institutions. These eventually lead to defaults when the investments mature.

To keep afloat, Savings and Loans Companies are advised to heed to BoG’s warning and revise their books in order to stand a chance of surviving in the sector.