The talk of the town in recent weeks was of the hefty bonus received by employees of one of the banks. It is no secret that bank employees receive bonuses every year.
It is good to know that the banks are doing well and that their employees are being rewarded.
But there is a sense of discomfort when, every now and then, a bank is auctioning off homes, land, vehicles and other equipment, as a result of a default.
Granted, the number of defaulters may not be crossing the bank’s limit but for a small society and a small economy attempting to achieve self-reliance, one defaulter is too many.
That the government is working with the central bank to reduce interest rates is information that will be welcomed by the general public. The prime minister rightly pointed out that the cost of borrowing is too high, and that the banks are making profits without having to face any risks.
The base rate is 10 percent but the banks are charging interest of up to 15 percent on certain loans.
The banks have been making profits of hundreds of millions of ngultrums annually. One bank even made a profit of a billion ngultrums last year!
In light of this, an obvious question that requires answering is whether the margin between the base rate and interest can be decreased. The profits certainly indicate that it can and should be.
We are fully aware that the lending of money is the bread and butter of a bank and that the risk of lending needs to be mitigated.
But for many who’ve borrowed from the banks, the view is that the banks are doing business at no risk, protected by high interest rates and devalued collateral.
This needs to change. There needs to be a shift away from being driven solely by the desire to make profit. There needs to be a calling! A calling not limited to only making as much profit from your customers, and fellow citizens, but also to help them succeed in their ventures, which in turn will help boost economic activity and build the country’s self-reliance.
If the wide margin between the base rate and interest rate is in place to reduce risk, then we need to question why the banks are not more proactive in scrutinising proposals for loans, and in monitoring how the money is used. Cannot the millions of ngultrums earned from customers as profit also be used to form specialised teams solely responsible to periodically monitor how the money is being used? This could reduce risk in a more productive way rather than just sitting back assured that you don’t lose either way.
It should not only be the responsibility of the borrower but the lender as well to reduce the chances of a default.
There is also a need for the banks to have strong check and balance mechanisms in place to ensure loan proposals cannot be influenced by personal networks which may be more prone to default.
We understand banks are businesses and need to make money. But how you make that money does matter.
By making it your responsibility to also ensure all borrowers do well, the economy will thrive and everyone can succeed together at a more equal level.