A former Deputy Governor of the Bank of Ghana (BoG), Mr. Emmanuel Asiedu-Mante has urged banks to consider the viability of businesses when advancing loans as against demanding houses and cars as collateral.
According to him, the over-reliance on collateral such as cars and houses, when granting loans is a high-risk venture that requires due diligence to determine the true owners of such properties.
Speaking to Citi Business News after a forum organized by the University of Ghana Business School(UGBS)on the theme “Emerging Issues in the Ghanaian Banking Industry”, Mr. Asiedu-Mante warned that banks risk collapse if they demand houses, and cars as collateral for loans.
“The evidence is what you just said. The banks have collapse. Why have they collapsed?.Because they did collateral lending. It’s not the way to go. The money doesn’t belong to you. Its depositors’ money so when you are lending, be sure that the money goes and come back with interest”.
Mr. Asiedu-Mante who worked over three decades at the Bank of Ghana cautioned banks to move away from the practice of demanding collateral in houses and cars since they are not reliable guarantees.
“If you are going to lend to somebody who says I have a house but there are no documents on it, where do you stand. The business of banking is trading with people’s money, so you need people who understand the business of banking, economics or accounting,” he stressed.
He observed that there is the need for banks to have the qualified members who understand the business of banking to lend to appropriate enterprises.
According to him, there is the need to fill board positions with persons with some experience in the banking industry to help take prudent decision.
“Practicing corporate governance is key to prevent the collapse of banks. So when you have a board that doesn’t have people with that knowledge or training, you are putting the business at risk,” he warned.
Other speakers at the forum included Dr. John Mensah, Managing Director of adb Bank and Professor A.Q. Q.Aboagye from the Department of Finance, University of Ghana Business School.