A credit risk analyst, George Ahiafor has attributed the rising levels of bad debts being declared by banks in the country to the lack of enforcement of the regulatory law which requires all banks and non-bank financial institutions, NBFIs, to assess the credit report of potential clients before advancing any loan or credit to them.

According to the Bank of Ghana’s Financial Stability Report, banks’ loan quality generally deteriorated in 2015 forcing the universal banks to make a provision of GH¢231.52 million as bad debt for the first quarter of this year.

This, compared to GH¢140.21m in the first three months of 2015 showed a 65.13% increase including provision for loan losses and depreciation. In March 2014, the banks wrote off GH¢175.31 million as bad loans but the figure fell to GH¢140.21 million in March 2015.

According to Mr. Ahiafor who is the chief executive officer of XdsData, Ghana’s first credit reference bureau, part of the problem too can be adduced to the bad economic climate which has slowed down business due to the energy crisis which has forced many businesses to operate far below capacity.

He said the inclement business atmosphere has reduced disposable incomes and also negatively affected business turnover and the ability of businesses to fulfill their obligations to the financial institutions.

‘Under the law, banks are to check the credit worthiness of their clients and potential clients but this law is not being enforced as the NBFIs keep giving excuses as to why they cannot take this simple precaution because they think the cost of involving a credit referencing for professional advice is not important. They always keep giving excuses as to their inability to contact the professionals to safeguard their own operations and remain profitable.

‘The fault lies at the supervising institution, the Bank of Ghana, BoG, which must enforce the law. No less a person as the vice president, Paa Kwesi Amissah Arthur has recently commented on the rising loan defaults which negatively affects the economy.’

According to the XdsData boss, the ultimate result of the bad debts is that it slows down economic growth as banks’ ability to grant credit is severely curtailed. This situation, Mr. Ahiafor described as serious as it will ultimately lead to business closures and employment opportunities.

He therefore called on the NBFIs to use the facilities of the various credit referencing bureaux in their businesses while asking the BoG to enforce the law to avoid the losses in the future.