New Software developed to avoid bad debts

A new software has been launched which will help banks better manage credit facilities to avoid defaults and high lending rates.

A former deputy-governor of the Bank of Ghana, Emmanuel Aseidu-Mante, has launched the new software, called Credit Quest, in collaboration with Harland Financial Solutions.

According to the Bank of Ghana’s Monetary Policy Committee report for February, the default rate in the banking sector is 13.2% with average lending rates hovering around 25% per annum.

This, Mr. Aseidu-Mante said, is high and could drop if banks manage their credit risks prudently.

The software, Credit Quest developed by Harland Financial Solutions, is being offered to financial institutions through SOFGEN West-Africa and will allow banks to improve and manage credit prudently with the goal of improving credit quality.

Mr. Aseidu-Mante, who is now the Chairman of SOFGEN West-Africa - a Swiss-based firm providing IT solutions to banks - said concerns about the increasing rate of loan defaulters on the books of financial institutions necessitated introduction of the Credit Quest software to help process and manage the credit management practices of banks properly, and also boost efforts to reduce the high interest rate spread on loans.

He said the high interest rates charged by banks on loans are partly due to non-performing loans and could drop if they curtail the default rate.

“There are a number of factors that impact on the interest that banks charge on loans granted to businesses and individuals.

“At present, the average banks’ interest rate on loans is high and so factors that put lending rates up need to be looked at. One of them is the default rate, and that is why we have brought the software to tackle it.

“Credit recovery or quality has been a problem in the banking industry for a long time. The banks give out loans, and for various reasons they are unable to recover them. So this software is to enable them to appraise loans properly and recover as much as possible,” he added.

The high non-performing loans in the banking system necessitated the Bank of Ghana giving authorisation to a number of credit reference bureaus in the country to provide banks with credit history and behaviour of customers to enable them properly assess the credit worthiness of borrowers.

Mr. Aseidu-Mante said the software solution being offered by SOFGEN differs from the works of credit reference bureaus, in that it helps banks to process and undertake credit management practices properly.

“Credit management is a whole gamut of credit appraisal. From credit origination through to appraisal to approval and disbursement to monitoring and recovery, that is a whole gamut. This chain of activities needs to be perfected at every point; otherwise if there is a fault in a chain and the loan goes, it might not be recovered and that would be a loss to the bank.

“So this Credit Quest software is to help the banks to perfect the credit management practices so they will recover the loans that they give,” he added.

Data from banks that have procured and implemented the Credit Quest software show that it has helped to cut the number of days for making credit decisions from about seven days to about one day.

The Vice President, Business Development of Harland Financial Solutions, Yaron Lavie, said the ultimate goal of the software is to improve credit quality and help banks to be profitable as it provides tools to increase the efficiency and quality of the credit analysis so that credit decisions are made in a consistent and profitable manner.

“This is so because it enables banks’ overall credit portfolio to be monitored for things like concentrations and trends to ensure that it also remains stable and profitable at the bank level,” he said.

He explained that with Credit Quest software, banks can now improve their credit risk management capabilities by implementing sound lending practices through using the Credit Quest system that comprises effective tools to track, monitor and manage exceptions in such a way as to ensure compliance vis-à-vis auditors and regulators’ responsibilities.