"Rethink your business models and target entrepreneurs, youth and women" - Bank of Ghana to Savings and Loans companies

The Bank of Ghana is recommending savings and loan institutions around the country to reconsider their business models.

Speaking at the 14th Annual General Meeting of the Ghana Association of Savings and Loans Companies, the Head of Banking Supervision Department at the Bank of Ghana, Osei Gyasi stated that corporations should focus on investing in Small and Medium-sized Enterprises(SMEs) to assist reduce non-performing loans (NPLs).

According to him, the sector's high financing costs have resulted in high loan rates, which he believes is limiting the industry's capacity to compete.

He then urged savings and loan firms to form strong bonds with the SMEs in order to keep their businesses growing.

"The high financing cost in the savings and loans subsector has also translated into high lending rate which is negatively affecting competitiveness."

"In the face of isometric information, economic theory suggests that one of the outcomes of high lending rate adverse selection of risk customers who are likely to default on their loans. It is therefore not surprising that the savings and loans subsector is saddled with high non-performing loans" he remarked.

"Non-performing loans reduce profitability, liquidity and capital erosion. Distinguished guests, savings and loans companies must revisit their first love and strengthen their bonds with MSMEs sector where the greater are achievable. The sector should rethink its business strategy and models and target low-income entrepreneurs, youths and women”, he stated.

He also emphasized the need of savings and loan businesses leveraging technology and FinTech collaborations to reach underserved people and increase financial inclusion.

“In the recent past, related party transactions and override of internal control mechanisms had led to serious compliance breaches and excessive risk-taking activities without commensurate risk management practices", he added.

Source : Lead News Online