BoG warns Non-Bank Financial Institutions over wholesale funds

The current rate at which some Non-Bank Financial Institutions (NBFIs) are clamouring for expensive wholesale funds instead of mobilising cheaper deposits from ordinary savers is worrying, Millison Narh, Deputy Governor of the Bank of Ghana (BoG) has disclosed.

He stated this yesterday in Accra during the inauguration of a new branch of Best Point Savings & Loans Limited at Makola.

According to him, the mobilization of wholesale funds at interest rates higher than Treasury bills raises the cost of funds of NBFIs and results in high lending rates.

“Thus the high intermediation costs ultimately lead to non-performing loans which can result in financial distress. NBFIs, especially the savings and loans companies, must therefore be mindful of these tendencies and adhere to their intended role of mobilizing cheaper deposits from ordinary savers.”

Mr Narh was unhappy with shareholders of NBFIs who use their institutions to finance other businesses through the mobilization of deposits from the public and on-lending same to businesses connected to owners and directors of the financial institutions.

“Let me sound a word of caution that shareholders of NBFIs should desist from such activities and respect the limits set in the banking Act with respect to lending to connected entities to avoid an abuse of their licences,” the Deputy Governor mentioned.

He said the rampant roll out of branches required huge investments from shareholders and put pressure on directors and management to ensure adequate returns on investments and at the same time guarantee the safety of deposits.

“In seeking to expand operations therefore institutions are sometimes tempted to deploy depositors’ funds into such capital investments which prove counter-productive and I must add that the Bank of Ghana will impose severe sanctions on any regulated institutions that engage in such acts.”

He added that there were challenges with SME financing, adding that with proper systems and innovative financial products, the lack of access to credit by SMEs would be curtailed.

source : Daily Guide