Data from the Bank of Ghana (BoG) shows that the non-performing loan (NPL) ratio, a percentage of bad loans over total ones, has taken its firm rise to another level, hitting an all-time high in November last year.

Manager of Financial Stability Department at the Bank of Ghana, Augustine Amoako Donkor has said that one of the reasons why NPL’s are high is the high default rate and it is the very thing credit referencing seeks to minimize.

“ What the credit referencing seeks to do is to provide information about a person’s credit behaviour and history to the potential lender” he added that, the credit referencing will give the extra information and gap that financial institutions may require from borrowers that may not be in the document provided by the borrower.

According to him, the credit referencing will protect financial institutions from giving out bad loans “if a financial institution decides to deny an individual who has a bad credit history due to the information available on the person with the credit bureau, automatically, that institution has been able to avoid one potential “bad” loan” adding that the credit referencing also provides borrowers with the weight to bargain for a lower interest rate.

“If an individual has a good credit history, that individual can use that as a collateral to bargain for a lower interest rate, it is called reputational collateral” he added.

According to him, credit referencing helps lenders to determine potential borrower’s creditworthiness and decline those who do not.

“All other things been equal, with this system NPL’s may come down” he added.

Amoako Donkor was speaking at the launch of the public awareness campaign and financial literacy on collateral registry and credit referencing in Accra on Wednesday, April 18.