The disparity between the policy rate and treasury bill rate, banks’ high operational costs, and the bad debt situation will make it impossible for lending rates to drop, corporate governance expert and CEO of Universal Capital Management, Dr. Richmond Akwasi Atuahene, has said.
His comments come on the back of President Akufo-Addo, last week, urging banks to reduce their lending rates which are in the region of 29 to 32 percent, as treasury bill rates, policy rate, and inflation are all falling.
“We have seen inflation decline from 15.6 percent in 2016 to 11.8 percent in 2017, and, now, at the end of January, 10.3 percent,” the president said. “The Monetary Policy Rate has also been falling from 25.5 percent in 2016 and now stands at 20 percent. The 91-day Treasury bill rate has also been falling from 16.4 percent in 2016 and now stands at 13.4 percent.”
Making a case for lending rates to drop, President Akufo Addo went on to say that: “The gap between what is happening to the decline in inflation, and the lending rates being charged by the private sector, is a gap we have to bridge. And, if we are to give substantial complement to the vision that we all share, as a Ghana free and globally competitive economy, my challenge to you is to complement the efforts of my government, which is creating a more stable macro-economic framework, by bringing down lending rates.”
Dr. Atuahene told the B&FT, however, that the gaps that exist in the inflation rate, policy rate, and the treasury bill rates are the main factors impeding the reduction of lending rates.
“The disparity between the policy rate and treasury bill rate is about 4 percent. In other jurisdictions, the policy rate and treasury bill rate stay closer. If a bank needs interbank borrowing today, Bank of Ghana will charge 17 percent.
So, the bank will have to attract deposits more than that rate. If the bank doesn’t attract deposits more than that rate and it has a problem, you have to borrow at more than 17 percent. Meanwhile, the treasury bill rate is 13 percent. So, the inconsistencies between the policy rate and the treasury bill rate is also creating a problem for the banks,” Dr Atuahene said.
“And the Bank of Ghana”, he added, “is also saying that because of the inflation trend, the policy rate cannot come down just like that. So, it is a dichotomy between the policy rate, the bad debt, and the treasury bill rate. Ideally, the policy rate should come closer to the treasury bill rate so that the banks can attract deposits above the treasury bill rate. And when they attract deposits above the treasury bill rates, then it means that they can also lend at a cheaper rate.”
Lending rates can only come down if, in addition, banks are able to bring their operation costs down, Dr Atuahene explained.
“If the banks must bring the rates down then they have to work to bring their operational costs down. Why is their operational cost high? Because they are carrying a bulk of non-performing loans and at the same time, their staff cost which, according to the IMF, is about 25-30 percent of the operation cost,” he said.
Central bank data shows the non-Performing Loans have reached GH¢8.74 billion in June this year, although the ratio dropped to 22.6 per cent in June from the 23.5 per cent recorded in April 2018.