Banks no longer pay-off loans

Banks no longer pay-off loans

It has emerged that commercial banks no longer pay-off loans. Paying off loans means a new bank will decide to settle a loan given by another bank to a customer. That is the new bank will pay to the former bank all the outstanding loans that a customer owes. The purpose of this arrangement is that the new bank wants to be the bank that does a loan business with the customer.

Advantages of paying off a loan
The reality is that human beings are rational beings. That is humans are always looking for a condition that is better than their existing condition.

In the case of financial transactions, in the form of loans, customers are usually comparing factors involved in accessing loans. Therefore, anytime a customer notices a favorable condition in terms of accessing loans from another financial institution, the customer would want to change his or her financial institution.

Loan obligations with an existing financial institution can be a standing block in an attempt to change a financial institution to access a loan. Outstanding loans with an existing financial institution are usually paid by the new financial institution to transact loan business with another financial institution.

Paying off the outstanding debt will enable the customer to access a one-stop loan facility with the new financial institution. This arrangement will also enable the financial institution to transact a bigger business with the customer.

Banks no longer pay-off loans allegedly.

In the latest development, banks are no longer interested in paying off loans. The reason the banks no longer pay off loans as disclosed is because of how the Controller and Accountant General Department (CADG) reimburse the banks.

Monies deducted for and on behalf of the third parties by the Controller and Accountant General Department (CAGD) are said to delay for more months before such deductions are reimbursed to the third parties including the financial institutions. The delay in reimbursement is said to delay up to eight (8) months in some cases.

Financial institutions, especially banks consider the delay as unprofitable for business. To compound the situation, hyperinflation and a sharp depreciation of the Ghanaian cedi mean the value of assets is depreciating faster. It is therefore unproductive for a bank to be taking over other financial institution’s debt. Keeping the monies of banks that need such monies to give to other customers as loans is a turn-off for the banks.

Exceptions
Banks are no longer paying off loans that are deducted from the salaries of customers by the Controller and Accountant General Department (CADG).

Banks are rather paying off loans that are deducted from the bank account of customers. Deductions done from the bank account of customers are not kept or delayed by any third party like the Controller and Accountant General Department (CADG)

Also, financial institutions whose interest rates are very high are still paying off loans that are deducted by the Controller and Accountant General Department (CAGD). Some of the financial institutions with high-interest rates are micro-finance and savings and loan companies. They mostly charge compound interest on their loans

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Negative consequences of banks no longer paying controller loans
As mentioned earlier, only financial institutions with relatively worse terms and conditions are paying off loans that are deducted by the Controller and Accountant General Department (CAGD)

This implies that customers who have no option will be forced to continue transacting loan business with financial institutions with worse terms and conditions.

However, customers would have to delay their plan for new loans if they would not like to continue transacting loan business with financial institutions with worse terms and conditions

The way forward

As it stands, until the Controller and Accountant General Department (CADG) starts reimbursing financial institutions in near real-time, banks will no longer pay off loans that are deducted by the Controller and Accountant General Department (CAGD).

Root cause
The fundamental reason why Controller and Accountant General Department (CAGD) is unable to reimburse financial institutions with their loan deductions is because of the general economic crisis in the country.

Therefore until the economic crisis is resolved, the Controller and Accountant General Department (CAGD) will be unable to reimburse funds to financial institutions.

It is hoped the approval of the bailout by the board of the International Monetary Fund (IMF) to the government of Ghana will bring some cushioning to the economy.

Reference: cagd.gov.gh

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