Cheap credit, costly consequences - GCB Bank MD warns of looming subprime risk in low interest era
Farihan Alhassan, Managing Director of GCB Bank, cautioned that the low-interest-rate environment could trigger a wave of risky lending if banks fail to exercise discipline, speaking on Joy News' PM Express Business Edition. He said, "So a low-interest regime also comes with its own problems, coupled with the directives of the Central Bank, which is invariably forcing banks to lend to the real sector. So if you're not careful, you're going to have subprime loans, so there needs to be that balance."
Mr. Alhassan stressed that regulatory pressure and internal risk controls must work together to prevent a repeat of past loan quality deterioration. He noted that the central bank has cautioned that banks whose NPLs go above a certain threshold will face replications. GCB Bank has strengthened its internal risk management systems, including tighter credit screening and proactive monitoring. The bank has raised its underwriting standards and holds early warning meetings to identify potentially problematic loans.
Mr. Alhassan explained that banks will now not put their assets or their deposits in government instruments, because the earnings there are very low, which will push banks toward private sector lending. He believes good businesses would have access to credits that they probably won't have had in the past, and would have the ability to actually pay back these loans, because the interest rates are quite low.
Quick Summary
GCB Bank's MD, Farihan Alhassan, has warned of potential dangers in the current low-interest-rate climate. He suggests that without careful management, the banking sector could be exposed to increased risk - but what kind?
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