Banks must avoid verbal promises to borrowers - Consultant

CEO of Meridian Legal and Financial Consult, Carl Abruguah, has tasked banks’ loan recovery officers to understand the contractual terms of the loans and credits advanced to clients to enable them to deploy the requisite legal actions to recover those debts when they are due.

The financial consultant also advised banks’ credit officers to avoid giving verbal promises to borrowers, and when they do so, they must have the authority to deliver on them.

Facilitating a two-day virtual training programme on the legal aspects of loan recovery, organised by the Chartered Institute of Bankers, Ghana (CIB), he said failure to do this would see banks entangled in counterclaims and subsequent loss of revenue.

“The conduct of the lender during appraisal and disbursement and supervision of the facility may very well result in liability to the bank arising from lender liability claims. Lenders must be wary of this possibility and take steps to ensure that they do not fall into the trap of borrowers,” he advised.

Adhering to these core principles, according to Mr. Abruquah, would help banks to reduce losses should the defaulter raise counterclaims in any legal action.

He shared that in other jurisdictions, borrowers have been able to make successful counterclaims against lenders, thereby reducing the amount recoverable from the customer.

In instances when the borrower decides to hide his assets, Mr. Abruquah suggested that banks may have resort to unorthodox measures such as hiring a private investigator to fish out the properties and to subsequently take legal action to recover monies owed.

Data from the World Bank on Ghana’s banking sector nonperforming loans (NPLs) from 2008 to 2018 reveal that the average NPL ratio was 14.9 percent within the period, with a minimum of 7.7 percent in 2008 and a maximum of 21.6 percent in 2017.

The two-day virtual training programme, on the theme “Legal aspects of loan recovery”, was, therefore, to equip banks with the requisite knowledge and skills to enhance their loan recovery efforts.

The participants, comprised of credit risk and recovery managers, internal managers and branch managers of banks, were taken through the regulatory requirements governing lending, key legal issues to consider in the loan recovery process as well as remedies available to judgement creditors.