Banks threaten to suspend new loans to public sector workers over Controller repayment delays
The Ghana Association of Banks (GAB) has warned that its members could suspend new loans to public sector workers whose salaries are processed through the Controller and Accountant-General’s Department (CAGD) if delays in remitting payroll loan deductions persist.
The proposed measure follows prolonged delays in transferring money deducted from public sector workers’ salaries to banks to settle their loan obligations.
Speaking at the 43rd Annual General Meeting of the Ghana Association of Banks in Accra, Chief Executive Officer John Awuah said the industry could take the unusual step in the coming weeks if the outstanding remittances are not cleared.
“We are now very hard-pressed, and we are likely going to take a very unusual step of suspending lending to all government workers whose salaries are processed to the Controller and Accountant General,” he said.
Mr Awuah explained that the problem had persisted for more than a decade and was putting additional pressure on banks, which have to absorb the financial impact when deductions made from workers’ salaries are not promptly transferred.
He said the situation was undermining banks’ efforts to manage their loan portfolios and could lead to avoidable impairments that erode profits.
“We want to see a stronger banking system, but we can't have a stronger banking system when the profit we make is eaten away by impairments that are completely avoidable,” he said.
According to Mr Awuah, the banks had repeatedly engaged the relevant authorities over the issue and had previously considered suspending lending to affected public sector workers.
He said the association shelved that decision after the Chief Director of the Ministry of Finance intervened and committed to helping resolve the matter.
The delays, however, have resurfaced, with banks reportedly waiting for three months of outstanding remittances as of October.
“We are in October; we are in a race for three months. And banks are having to take the hit because the Controller has refused to do what they have to do,” he said.
Mr Awuah stressed that the affected workers had already had the loan repayments deducted from their salaries, meaning the outstanding responsibility was for the CAGD to transfer the money to the respective banks.
“They have been paid, which means that they have settled the loan. So it's just left with the Controller to also pass on this disbursement that has already been taken from the salaries of public sector workers to be channelled to the banks,” he said.
He said the association was hopeful that the outstanding payments would be settled to avert the proposed suspension and allow banks to continue providing credit to public sector employees, including teachers, nurses and doctors.
The GAB CEO also identified deliberate loan defaults as another major concern for the banking industry, stressing that reducing non-performing loans (NPLs) was critical to improving lending conditions.
His warning comes as the Bank of Ghana pushes banks to reduce their NPL ratios to 10%.
Mr Awuah cautioned against comparing Ghana’s lending rates with those in neighbouring countries without also considering the respective levels of non-performing loans.
He argued that resolving the delays in transferring payroll deductions would help banks manage their loan books more effectively, sustain lending and provide the financing needed to support economic growth.