The face value of bills and bonds used as collateral to access loans from banks and other lending financial institutions has hit GH¢5.4billion as at August, 2016, data from the Central Securities Depository (CSD) has shown.
Increasing from a paltry GH¢98.1million in 2010 to GH¢5.4billion in August, 2016 representing 5,417percent increment, debt pledges is fast becoming the go to collateral demanded by banks and other lenders to secure their loans.
Despite the number of transactions (individual and institutional) fluctuating, the value of the transactions has consistently grown from GH¢98.1million in 2010 to GH¢773.8 million in 2012 and then from GH¢5.9 billion in 2015 to GH¢5.4billion in August 2016.
According to the Bank of Ghana’s September Financial Stability Report, banks offered GH¢28.1billion in loans and advances as at end-July 2016, recording a lower annual growth of 12.1 percent, compared with 24.1 percent growth in July 2015.
This means, whereas borrowers used movable and or immovable properties including cars, jewellery, houses, and land to access such loans, the use of debt pledges has been quietly on the rise since 2010 and accounting for a significant portion of loans disbursed.
Many industry players see the debt pledges as near cash and held in trust by the Central Securities Depository, in sub accounts, on behalf of lenders and borrowers and can be easily and quickly converted into cash, when compared to some movables like cars or immovables like houses and lands.
With Non Performing Loans (NPLs) rising, currently standing at 19.1percent, up from 13.1percent in July 2015, and making banks hesitant in lending, especially with the December polls beckoning, banks are looking at other avenues to return profits to shareholders.
But borrowers, according to industry players, with debt securities stand a better chance of accessing loans.
Chief Executive Officer of the CSD, Stephen Tetteh, explained that anybody who takes a facility from a financial institution can use their securities accounts balances or holdings, as collateral.
"All they have to do is send us instructions. The borrower sends us the instructions by filling a pledge form for the bank to submit it to us and then we set it up. What we do is we remove the securities, or the portion pledged into a sub account called a collateral account and hold it on behalf of the lending institution. The borrower has to indicate the amount we should hold and the period to hold it.
Once we do that, neither the borrower nor lender, be it an individual or institution can have access until the maturity of the pledge period. If the pledge is going to mature and the borrower has defaulted, the bank can just notify us so we do not release the security until further instruction from the bank or lending institution," he said.
He added that this is easier than giving documents to the bank to hold. To him, this is just an account and the borrower and lender determine how much of the borrower’s account to be given to the bank as collateral.
"You do not need to give your whole securities account balance to the borrower, only part of it. You negotiate with your lender as to how much to be used as collateral. For example, if you want a GH¢2,000 loan and you have a valued security of GH¢20,000, you do not need to give the whole security to the bank. Maybe you can use about GH¢2,500 and the rest is there for you, generating interest including the portion that has been used as collateral."
Mr. Tetteh, noted that individuals and institutions are using this avenue to access loans, due to the ease and trust both lenders and borrowers have in the systems of the CSD.
"What we have realised is that the banks prefer these securities because it is easier to deal in. Now we have the authority to move these securities to the lending institutions in case of defaults, and the lending institutions no longer have to go to court," he said.
He added that once lenders show evidence that the borrower has defaulted, the CSD will contact the borrower and give them time and show reason why the securities should not be moved to the lending institution.
"Once it is moved to the lender, it is easier to sell than selling a house. These ones are secured with us and you do not need a vault to keep car or house documents. We do all the safe keeping for you and hold these securities electronically on your behalf," he added.
Kojo Addae-Mensah, CEO of Databank added that with traditional banks relying usually on property, movable or immovable, mostly cars or houses as collateral has presented loads of problems to bankers, "I think it is a very good thing."
He further explained that sometimes even after the bank has gone through court procedures for over a long time to take ownership of the car or house used as collateral, disposing it off becomes another challenge.
"You are forced to sell it [car or house] even below your fair-sale value. It makes lending very difficult. Looking at this, and moving from GH¢98million in 2010 to GH¢5.4billion as at August, 2016, I think it is a fantastic thing. I think it is even one of the reasons why the CSD was established.
This gives the banker more confidence to lend and is able to take more risk. This is fantastic. If you bring me securities in your accounts with the CSD and you are putting it up as collateral, why not, I will quickly lend to you. If there is an issue I just alert the CSD and the CSD acts in accordance with its rules," he said.
Source:B&FTonline
