Ghana’s banking industry is preparing for a major shift in how it extends credit to public sector workers as banks consider suspending lending to employees paid through the Controller and Accountant-General’s Department (CAGD) payroll.
The move, which could affect thousands of public sector workers who depend on payroll-backed loans, follows growing concerns over loan repayment failures and rising non-performing loans across the banking sector.
Chief Executive Officer of the Ghana Association of Bankers, John Awuah, disclosed that banks have already begun discussions on the proposed action, warning that lenders may soon stop granting new loans to public sector workers under the CAGD payroll system.
Banks Prepare To Pull The Plug
According to Awuah, the decision has become necessary because banks are increasingly struggling to recover loans even when borrowers continue to receive their salaries through the government payroll system.
He said the situation has become serious enough to force banks to consider withdrawing from a lending arrangement that has traditionally provided public sector employees with relatively easy access to credit.
“We have begun discussions and in the coming weeks and days we are going to take an action to suspend total lending to public sector workers under the Controller and Accountant Generals payroll. This is serious because we cannot continue to do this to the industry [banking] where salaries are being paid but our loan repayments are not remitted.
“We shall be forced to do this to save the industry and I can assure you that this time, we shall go ahead.”
John Awuah
The proposed suspension represents a significant warning to public sector workers who have relied on their regular government salaries to secure personal loans, consumer loans and other forms of credit.
Rising Defaults Put Banks Under Pressure
Awuah explained that the growing level of defaults among public sector borrowers has become a major concern for banks.
The problem is particularly sensitive because payroll lending has historically been regarded as a relatively secure form of lending. Regular salaries provide banks with an established source from which loan repayments can be recovered.
However, difficulties in remitting repayments have weakened that confidence and increased the financial pressure on lenders.
The banking industry is already under pressure to bring down its non-performing loan ratio, with the Bank of Ghana demanding stronger action from financial institutions.
Awuah said the proposed lending restrictions are linked to a directive from the Governor of the Bank of Ghana, Dr. Johnson Asiamah, for banks to reduce non-performing loans to below 10% by next year.
That target is now forcing banks to take a harder look at borrowers and lending channels that may expose them to additional repayment risks.
Three-Month Delay Adds To Tension
The latest warning is not entirely new. According to Awuah, the proposed suspension was initially expected to happen about three months ago.
However, intervention from some senior officials delayed the decision.
“We have had all the discussions and whatever we need to say has been said but still we don’t get the results. This action was supposed to happen three months ago but few people from higher offices intervene and we had to pause. This time in the next few days or weeks, you’re going to hear from us.”
John Awuah
His comments suggest that banks have reached a point where further delays could become increasingly difficult to justify.
The coming weeks could therefore determine whether public sector workers will continue to have access to payroll-backed bank loans or face a broader credit squeeze.
Lending Rates Could Feel The Impact
Awuah also warned that the development could have implications for lending rates.
If banks become more cautious about extending credit because of concerns over repayment, lenders could tighten their credit assessment processes and demand stronger assurances from borrowers.
Higher perceived credit risk can also influence the cost of borrowing as banks seek to protect their balance sheets against potential losses.
Public sector workers could consequently face tougher conditions when seeking loans, even if a complete suspension does not immediately occur across the entire banking industry.
The development also highlights the wider challenge facing banks as they attempt to balance expanding credit with protecting asset quality.
Banks And BoG Push For Stronger Lending Rules
Beyond the proposed suspension, the Ghana Association of Bankers has also been tasked with working with the Bank of Ghana to develop a framework for the full implementation of the Lenders and Borrowers Act.
The framework is expected to strengthen the relationship between lenders and borrowers while providing clearer mechanisms for managing credit risks.
A stronger implementation regime could help banks obtain better information about borrowers, improve credit assessment and strengthen mechanisms for recovering outstanding loans.
The immediate concern, however, remains the growing pressure created by unpaid loans.
If banks proceed with the proposed suspension, public sector workers could become some of the first major groups to feel the consequences of the industry’s tougher approach to credit.
The decision could also send a powerful signal to borrowers across the economy that banks are becoming less willing to tolerate persistent loan repayment failures.
READ ALSO: Barker-Vormawor: NDC Majority in Parliament Underwhelming
