<<Print>>

Ghana�s central bank may be forced to act if banks remain insolent and continue to feed fat on high interest charges despite growth enhancing reforms by the bank, a source close to the Bank of Ghana (BoG) has said. Speaking on anonymity, a senior official at the Bank of Ghana told the Financial Intelligence the bank was exploiting all possible ways to bringing down the cost of borrowing in the country, including the possible placement of a cap on interest rates, a practice that has been employed in other jurisdictions such as in Nigeria. The central banker made explicate BoGs disapproval of the current situation of the country�s financial sector where commercial banks prevent many from benefitting from the fruits of effective financial intermediation, blocking the free flow of resources from surplus to deficit units by their unacceptably large spreads. He confirmed the fact that interest rates in the country remained one of the highest in the region. �The banks have always justified their high interest charges by saying that they are determined by factors beyond their control, including the high central bank prime rate, high Treasury Bill rates and the need for a higher risk premium as a result of operating in a risky environment,� he explained �The banks review their rates upward anytime the first two heads north,� he said. �It is therefore difficult to understand why the banks fail to adjust their rates downward when these factors turn favourable,� he lashed out. He hinted that current management of the central bank have vowed to bring down the cost of borrowing in the country and �nothing could stop us in the track.� He wondered why despite stack improvement in competition, banks still looked to the big players to decide the level of interest charges. Under the leadership of K.B. Amissah-Arthur, the new team made its first interest rate reduction in November, signaling a reverse in three years of tight monetary control. The 50 basis point reduction in the benchmark rate to 18.0 per cent in November was least expected, but gave enough proof that the bank was about to chart a new path. Following the review however, the country�s commercial banks as ever before, resorted to vague promise of better rates for clients soon, but nothing significant changed with respect to interest charges. Consumer inflation has fallen for a seventh straight month, with January�s inflation hitting a low 14.78%. Quotations on treasury securities have also taken a nose dive. From a year open rate of 20.64%, the 91 Day Bill has fallen 322 basis points to 17.42%. The 182 Day Bill has dropped 456 basis points from year open to 18.73%, whilst the 1 year note has declined by 200 basis points to 18.00%. The 2 year note has also followed a similar trend, declining by 300 basis points to 19.00%. Despite these significant improvements, Ghana�s deposit money banks continue to hold on to high average base rates of about 30%. Annual percentage rates that are indicative of the true interest charges borne by borrowers extend far beyond 30%. Non-bank financial institutions charge even more, with lending rates above 60% per annum widely recognised as normal in the industry. The MPC is expected to cut interest rates by at least 100 basis points following a significant drop in inflation, a continuing appreciation of the cedi against the major trading counterparts, a reduction in public debts, and an improved external sector. Whether the rate cuts would translate into reductions in lending rates at the commercial banks is what most people the FI talked to expressed skepticism about.