Why Banks Will Continue To Increase Existing Loan Deductions [The current increase is only the beginning]
There are notifications coming from various banks about their need to increase existing bank loan deductions. Some of the notifications which rather provide a long essay are just an early warning signal of what the commercial banks will be doing going into the future.
By law, commercial banks are required to give a minimum of one month notice to their customers by way of the loan agreement. And that is the reason such notifications are flying from the banks to their loan customers in Ghana.
It must, however, be known that any party to the loan agreement including the customer can terminate the loan agreement if they are not comfortable with the impending change in the loan agreement by way of increasing the existing loan deductions.
The termination of the loan agreement by the customer would take the form of paying upfront the outstanding balance of the loan. But the question is, will customers be able to clear such debt in this time of the economy? This is where the banks have the upper hand in increasing existing loan deductions and customers can not do anything about it.
See also: 3 Reasons Mutual Funds/ Banks Can Not Opt Out Of Haircut In Ghana
Now, the very reason banks will continue to increase the existing loan deductions and it will be supported by law is the simple clause in the loan agreement where the type of interest rates being charged on the loan is termed “flexible interest rates” instead of “fixed interest rates”.
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The flexible interest rates means the interest rate charged on the loan could change based on the several factors that would summed up to a level the banks consider significant. A question anyone could ask is whether banks have ever reduced existing loan deductions just because such factors have been favourable to the economy? For now, until the economy is stabilized, the current increase in existing loan deductions is just the beginning of a marathon journey of increase in deductions.
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