Credit delivery to businesses — already a challenge due to improper book-keeping by businesses, high interest rates and misuse of funds by business owners — faces more problems as slow judicial processes serve as disincentives to banks lending.
Bankers have noted that slow court proceedings make the claiming of properties used as collateral very difficult when borrowers default on the loans acquired.
“The judicial process is slow. Asset disposal is difficult through the courts because you have to have hearings which could take years to complete,” Dzifa Amegashie, CAL Bank Head of Investor Relations retorted in an interview.
Managing Director of GCB Bank Simon Dornoo concurred with his colleague from CAL Bank, stating that: “The judicial process is very slow. Generally, within the banking system there is this very strong view that the legal system is slow.
“It takes up to four years to finish a case, and when you juxtapose that to the requirements banks have to meet when it comes to loan quality assessment and all that, it is unrealistic.
“If you want to rely on a judicial process to protect your loan not to be written-off and it is going to take you four years to do, then obviously it creates a constraint for banks to want to lend to individuals or businesses,” he added.
Mr. Dornoo noted that despite the establishment of a commercial court to support and expedite action on commercial cases, nothing much has been seen.
“I don’t control the judiciary and I don’t know what happens, but if we are able to move toward a situation where we can conclude some of these legal matters very quickly it will improve credit delivery. One of the things hampering credit delivery is the length of time to undertake the judicial process.”
But under the Borrowers and Lenders Act, 2008 (Act 773), banks are allowed to claim properties used as collateral and registered with the Collateral Registry without going through the rigorous court process which could take up to half a decade.
The Collateral Registry, a body established by Parliament in line with the Borrowers and Lenders Law, is mandated to register secure loans, otherwise known as charges and collaterals, which borrowers use to obtain credit facilities from lenders.
This means that there will be a record of assets used as collateral in the country, and banks or lenders should be able to confirm their existence as well as take possession of such assets in the event of a default.
Additionally, an individual or organisation can only use an asset once to secure a loan from a bank or lender, as a search at the registry would identify that the collateral had been used.
Despite this measure by the central bank — which has so far registered 104,308 collaterals on which 49,096 loans have been secured — Mr. Dornoo noted claiming the property is easier said than done.
“I don’t think it is that easy. Under the Act, you don’t need to go to court before you sell the property; but once you do that, the customer can always go to court. You cannot prevent anybody from going to court,” he said.
In citing an example, he said if a customer comes for a facility from the bank and mortgages a house which is registered under the collateral registry but defaults on the loan, the customer can go to court and stop the bank from selling the property.
“So the court will then decide if the bank has the right to just sell, meanwhile the Act gives the bank the right to sell. Previously you had to go to court and request an order for the judicial sale of the mortgaged property, but now with the Borrowers and Lenders Act you can realise the property.
“You can go ahead, but it is not easy to lose property — so whatever the customer can do to delay the process, he/she will. The customer can hire a lawyer and place an injunction on sale of the property,” he added.
Mrs. Amegashie added that it is difficult to sell somebody’s house in these trying times. “If you owe me money, first of all the court processes in Ghana are slow. There are so many adjournments with parties not showing up.
“But the other thing is that liquidation is difficult. Who has money to buy the house? We are ready to sell the property, if it is registered under the Collateral Registry or we have gone to court and won the case, but there is no one to buy. There is a liquidity crunch.”
She noted that apart from the lengthy court processes, there is also some social pressure as well. “Many people would start looking at banks differently and not as institutions that can be trusted.”
Credit: BFT