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Increasing Bad Loans Due to High Interest Rates

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Economist, Dr. Lord Mensah has attributed the high level of non-performing loans(NPL) in the country to the unrealistic interest rates charged by banks on loans.

According to him, banks in Ghana will continue to see high levels of defaults on loans, if they persist with high interest rates.

The amount of non-performing loans on the books of banks saw an increase of 31.2% from December 2016 to December 2017.

Speaking to Citi Business News, Dr Mensah stated that it is important for banks to reassess the interest they charge on loans to reduce the level of NPL’s on the market.

“Of the factors affecting non-performing loans in Ghana, interest rates being charged by banks are instrumental. The levels of interest rates from banks in Ghana are unrealistic”.

He added “banks can charge rates that allow them to get back what they’ve given out plus an appreciable interest. But beyond a certain limit, high interest rates can lead to high defaults on loans”.

Dr. Mensah explained that high interest rates indicates high risks which most often lead to bad loans.

NPL in 2017

The year 2017 ended with December recording an average base rate of 25.7 percent.

The NPLs of commercial banks in Ghana reached GH¢7.96 billion as at June 2017.

The figure went up from the GH¢6.09 billion recorded in the same period in 2016.

The Bank of Ghana’s banking sector stability report attributed the rising Non-Performing Loans (NPLs) to the debts due private sector businesses.

Of the estimated 8 billion cedis debt at the time, the private sector accounted for as much as 95 percent; up from the 87 percent recorded the previous year.

This is also equivalent to about 7.6 billion cedis of the total NPLs.

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