- Banks Threaten to Halt Loans to Public-Sector Workers Over Unpaid Payroll Deductions
Commercial banks in Ghana are preparing to suspend lending to public-sector workers paid through the Controller and Accountant-General’s Department payroll system, citing persistent failures to remit loan deductions already taken from employees’ salaries.
The Ghana Association of Banks said the disruption had contributed to rising non-performing loans and was exposing lenders to losses even where borrowers’ salaries continued to be paid.
John Awuah, Chief Executive of the Association, said discussions on a sector-wide response had begun and that banks could announce the suspension within days or weeks.
“We have begun discussions and, in the coming weeks and days, we are going to take action to suspend total lending to public-sector workers under the Controller and Accountant-General’s payroll,” Mr Awuah said at the Association’s Annual General Meeting.
“This is serious because we cannot continue to do this to the industry where salaries are being paid, but our loan repayments are not remitted.”
Payroll-backed lending is generally considered relatively low risk because repayments are deducted directly from borrowers’ salaries. However, the arrangement depends on the institution administering the payroll transferring those deductions to lenders promptly.
Where deductions are made but not remitted, banks may classify the affected facilities as delinquent despite the workers having sufficient salaries and, in some cases, having already suffered the deductions.
The threatened suspension could restrict access to personal loans for teachers, health workers, security personnel and other government employees who rely on payroll-backed credit to finance housing, education, medical expenses and household consumption.
It could also lead banks to increase interest rates or impose tighter lending conditions to compensate for the operational and repayment risks associated with the payroll system.
Mr Awuah said previous engagements had failed to produce the expected results, adding that an earlier attempt to suspend lending was delayed following intervention from senior officials.
“We have had all the discussions and whatever we need to say has been said, but still we don’t get the results,” he said.
“This action was supposed to happen three months ago, but a few people from higher offices intervened and we had to pause. This time, in the next few days or weeks, you’re going to hear from us.”
The move comes as the Bank of Ghana intensifies pressure on lenders to reduce the industry’s non-performing loan ratio to below 10 per cent by 2027.
While suspending payroll loans could help banks limit the creation of new impaired facilities, it would effectively transfer the consequences of an institutional remittance problem to public-sector employees, including workers who have maintained sufficient salaries for repayment.
A resolution will therefore require more than tighter credit standards. It will demand reconciliation of outstanding deductions, firm timelines for transferring payroll repayments and a transparent system through which banks and borrowers can track remittances.
The Association has also been asked to work with the Bank of Ghana on a framework for fully implementing the Borrowers and Lenders Act.
Unless the payroll-remittance dispute is resolved quickly, public-sector workers could become the first casualties of the banking industry’s effort to clean up its loan books and meet the central bank’s new asset-quality target
