Editorial: Savings And Loans Companies Bounce Back – Good News, But…

The citinewsroom.com reported yesterday that Ghana’s savings and loans sector is experiencing renewed public confidence, with deposit mobilisation rising by 39.4% Year-on-Year (YoY) to reach GHS 6,104.29 million in 2024.

This strong performance, according to the report, underscores the sector’s growing role in financial intermediation and its importance to micro, small and medium-sized enterprises (MSMEs).

The report further quoted the Ghana Association of Savings and Loans Companies (GHASALC) as saying that the sector’s total assets increased by 30.6%, hitting GHS 9,632.13 million in December 2024, up from GHS 7,374.66 million in the previous year.

The Gross Loan Portfolio also stood at GHS 6.48 million, with the services sector maintaining its lead, securing GHS 3,591.31 million in credit.Net loans recorded a 20.5% YoY increase, rising from GHS 4,691.47 million to GHS 5,654.15million, signalling greater credit support to the real economy.

Borrowings also saw a 27.2% increase, climbing from GHS 1,668.21 million to GHS 2,122.60 million, reflecting continued reliance on external financing to fund loan portfolios.

Speaking at the 15th Annual General Meeting (AGM) of GHASALC, themed “Empowering MSMEs for Inclusive Growth,” CEO TweneboahKodua Boakye, emphasised the importance of borrower transparency in sustaining sector stability.

“We want to be very sure that you have the liquidity, you have the cash flow to pay your loan as you have promised. However, when a customer is in the process of paying the loan and he has a challenge, we encourage the customer to walk to the financial institution. Don’t wait until you have defaulted before they chase you around,” he stated.

On August 14, 2017, the then government through the Bank of Ghana began the banking sector clean up exercise. Through this exercise, several universal banks, savings and loans companies were closed down. Some of the reasons were that most of these banks were already insolvent and that they only exist on paper. Others too reportedly took huge sums of money from the Bank of Ghana to recapitalise, but ended up diverting these funds into other non-core businesses.

Some of the industry experts however questioned the move arguing that the huge sums of money (GHS25bn) that were used in the whole exercise could have been used to recapitalise the collapsed banks, sustained jobs and confidence in the national economy.

The then governor of the BoG, Dr Ernest Addison, however disagreed because according to him, the GHS25 billion was not for the banks alone and that it covered the entire financial system clean-up.

“I hear statements like we spent so much money to clean up banks, but you don’t compare apples with apples, because that GHS22 billion or GHS25 billion that is quoted was not the amount spent to clean up banks alone.

“It was the amount spent to clean up banks, savings and loan institutions, microfinance institutions, and institutions that were licensed by the Securities and Exchange Commission (SEC).  So that’s the total financial sector clean-up cost”, he clarified.

The decision nevertheless imposed untold hardship on most of the customers on these collapsed banks, saving and loans companies, including some of the staff. Apart from staff of these financial institutions losing their jobs, investors also lost trust in depositing their hard earned incomes with the banks.

However, if these investors are now seeing the need to deposit their earnings with the savings and loans companies, it means the economy is indeed bouncing back. But whilst this is welcome news, it is also incumbent upon the BoG to ensure that investors money that have been given to the savings and loans companies are well protected.

As we earlier noted, since the banking sector clean up exercise wreaked severe havoc on investors, the malpractices that resulted in the catastrophe should never be allowed to raise its ugly head again.

So yes, we are happy the savings and loans companies have bounced back, but they need to adopt quality banking strategy to complement the trust that has been reposed in them by the investors.

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