Some bankers have warned any move by Government to cap interest rates in Ghana will end in a disaster.
Banking consultant and Principal Consultant at Osei Tutu II Centre for Executive Education & Research Nana Otuo Acheampong told host of Business Today, Vivian Kai Lokko that ‘It will be a disaster if we decide to go that way.
At the end of the day interest rates is a price and therefore the free market economics tenets are to be allowed for items of prices to find their own level and if you start with one you must continue with the rest unless you want to return to the 70’s with price controls and the problems it came with’.
The warning follows calls for a cap on interest rates as being done in Kenya. President John Mahama early this week however stated that his administration is yet to consider capping interest rates as being done by Kenya.
‘“Interest rates are not controlled by government…I notice that in some countries they have passed legislations to cap interest rates but I do not know if that is the way to go…But my belief is that prudent management of the economy will see interest rates decline continuously,” he stated.
The President added, “If government is borrowing less on the domestic market and Treasury bill rates are coming down, there is no way interest rates will remain up there. There is also the issue of high default rate in the market and that poses a high risk to commercial banks leading to high interest rates. So all of us need to deal with this issue of interest rates together,”
The Kenyan case study
Kenya in August this year defied opposition from the central bank and industry and signed a legislation that imposes limits on bank lending and deposit rates.
Under the new law in Kenya lending rates will be capped at four percentage points above the central bank’s benchmark rate, which is 10.5 per cent, while deposit rates must be at least 70 per cent of the benchmark rate.
Bankers have warned Kenya’s move will in the end lead to high risky customers being locked out of accessing loans from banks and will in the end hurt the very customers that are being protected.
BoG worried over high rates
Governor of the Bank of Ghana (BoG) Dr. Abdul Nashir Issahaku a few weeks back described as worrying the country’s high lending rates.
“It is a worry and that is why we are working around the clock to bring down the rates. We will see the rate coming down if the disinflation process is consolidated and when inflation begins to come down substantially, of course it will pull down interest rate. And that is our mandate to bring down inflation,”
“I have sleepless nights over high cost of credit and I can assure you that I am working very hard to ensure that the cost of credit comes down.” he said.
BoG data on lending rates
The latest Annual Percentage Rates (APR) and Average Interests (AI) on deposits report released by the Bank of Ghana shows that the average minimum interest rates that can be charged on loans and advances by commercial banks in the country increased marginally between May and September this year.
The figure increased from 27.5 percent to 27.8 percent during the period.
While average interest on loans is between 30 and 35 percent.
According to the report, Bank of Baroda offers the lowest base rate on loans while Unibank offers the highest base rate.
Base rates of banks in Ghana
Bank of Baroda’s base rate the lowest in Ghana is at 15.3 percent.
Standard Chartered Bank is next with the lowest base rate at 18.6 percent.
GCB Bank comes third with 20.8 percent.
Barclays Bank, Societe General, Stanbic bank and Zenith Bank follow as fourth, fifth, sixth and seventh in that order with base rates pegged at 21.9, 22.3, 22.7 and 24.4 percent respectively.
Also, ADB’s base rate of 24.7 percent places it at 8th position while FBN Ghana and GT Bank occupy the 9th and 10th positions with minimum interest on loans at 25.5 and 25.6 percent respectively.
In addition, Ecobank, First Atlantic bank and Fidelity Bank ranked 11th, 12th and 13th respectively.
Their minimum interest rates on loans are 26, 26.5 and 27.4 percent respectively.
At the 14th position is Bank of Africa with 27.6 percent while Sovereign Bank occupies the 15th position with 27.8 percent.
Meanwhile loans and advances from First National Bank, Energy Bank and Cal Bank attract minimum interests of 28.3, 28.4 and 28.6 percent respectively representing 16th, 17th and 18th positions.
National Investment Bank offers 29.4, HFC Bank 30.1percent and GN Bank 30.2 percent to take the 19th, 20th and 21st positions in that order.
Indigenous bank, Unibank, which is offering the highest interest on loans is charging 45.1 percent as its base rate.
It is preceded by the Royal bank, Sahel Sahara Bank, Capital Bank, UT Bank and Prudential Bank Limited. Their rates are 38.6 percent, 34.9, 33.9, 32.1 and 30.4 percent.
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