Banker Philip Oti-Mensah has condemned the ‘harsh’ and unconventional methods used by UT Bank to collect debts as “irresponsible”.
UT Bank has a billboard that portrays it as a ‘smiling chimp’; the smile depicting the bank’s commitment to putting smiles on clients’ faces by processing and delivering loans in 48 hours. But the ugly face of the chimp also depicts the harsh methods the bank uses to collect debts from defaulters.
The UT Group indeed has an entity called UT Collections, which is solely responsible for executing those ‘harsh’ debt collection methods on behalf of the group and on behalf of other companies on request.
Some of the methods they employ include ceasing of defaulters’ cars in the middle of the road and sale of landed and other properties to off-set debts.
UT Group has often argued that those methods are a last resort applied on chronic debtors, but there are a lot more clients who are happy doing business with the bank because they are committed to repaying their loans on time.
Apparently, those methods have been successful and it reflects on the overall success of the UT Group.
But Philip Oti-Mensah, who is Managing Director of Jospong and Zoomlion Groups’ Union Saving and Loans thinks UT’s debt collection methods are irresponsible because it means the bank fails to do proper analysis of clients to be sure if they could repay loans before giving them those loans.
“Because they know they can always sell a debtor’s collateral to offset the debt, they do not care about whether the client can repay the loan or not – that is not responsible banking,” he told Adom Business.
Philip Oti-Mensah said the success of some banks (UT included) has been largely due to the irresponsible practice of taking huge collateral from persons they knew did not have the ability to repay loans, and yet they gave them the loans.
“I think that for some of the banks they know at the time of giving loans to certain clients that that client cannot repay and yet they took very huge collaterals and use some unconventional recollection ways. Go check from some of those banks how many out of 100 clients repay their loans normally,” he asked.
He said the profitability of banks depends on how effective their loan recollection is, and that is why it is important for banks to do proper analysis of clients, and ensure from the onset that clients who take loans have the ability to repay.
Philip Oti-Boateng thinks some regulation need to be brought to bare on banks and financial institutions who over rely on huge collaterals and or apply unconventional methods to collection debts.
This, he believes, would ensure some sanity and responsible behavior in loan transactions in the country.
He also believes the Central Bank should regulate interest rates strongly, because most of the banks and financial institution have ‘too high’ interest rates, and the way they calculate the interest rates makes it difficult for clients to repay.
Philip Oti-Mensah explained that most banks charge as high as 10% flat per month as interest rates – which means when a client borrows money, the bank calculates the 10% monthly interest rate on the original amount borrowed. So even if the client pays part of the original amount, he would still continue to pay monthly interest on the original.
“We do not do that at Union – we charge your subsequent interest rate on the remaining amount, not on the original – the regulator needs to step in and ensure some sanity in the industry,” he said.
Oti-Mensah thinks the BOG needs to be more proactive in the enforcement of the standards it issues for computing interest rates, because till date some banks are doing their own thing and are not following the BOG’s standards.
He also urged Ghanaians to ask questions about the loans they take to understand exactly how the interest is being calculated, otherwise borrowers would end up paying more than they thought they bargained for.
Philip Oti-Mensah thinks banks should educate their clients thoroughly on the nature of loans and interest rates applied to loans, and the regulator should also make it a task to educate Ghanaians about the different ways banks calculate interest rates so that citizens can avoid bad deals.