Drawing from my extensive experience in lending at major Ghanaian banks like Stanbic Bank Ghana, guarantees serve as vital securities under the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930), offering flexibility in credit extension while aligning with BoG’s Capital Requirements Directive. They were particularly useful during the 2017-2019 recapitalization, enabling banks to secure advances without physical assets. Here are four advantages, explained with practical insights:

1. Ease of Execution and Low Cost: Guarantees require minimal documentation compared to mortgages or pledges, reducing legal fees and processing time. In Ghana, a simple indemnity form suffices, per PNDC Law 225, allowing quick approval for SME loans at banks like Ecobank Ghana. This cost-efficiency supports profitability, especially in a high-interest environment post-DDEP (2022-2024), where administrative burdens could erode margins.
2. No Need for Valuation or Possession: Unlike tangible securities like land, guarantees don’t necessitate appraisals or custody, avoiding valuation disputes under BoG guidelines. For corporate guarantees, this enables seamless support for subsidiaries, as seen in Access Bank’s group lending structures. It minimizes operational risks and enhances lending speed, crucial for ethical, customer-centric banking.
3. Flexibility in Coverage: Guarantees can cover multiple advances or be unlimited in amount, providing scalable security. Under Act 930, this allows banks to adjust limits dynamically, beneficial in volatile sectors like agriculture. Real-world application includes guarantees from parent companies during the 2019 cleanup, helping banks like GCB maintain liquidity without asset seizures, promoting sustainable practices.
4. Psychological Deterrent and Moral Pressure: The guarantor’s personal liability encourages borrower repayment, reducing default rates. In Ghanaian context, cultural norms amplify this, as defaults could damage reputations. BoG’s Corporate Governance Directive 2018 reinforces this by mandating due diligence on guarantors, leading to lower provisions for bad debts and improved portfolio health, as evidenced in post-cleanup recovery trends.