The President Nana Akuffo Addo has tasked the Bank of Ghana (BOG) to address the issue of high interest rate in the country. The Central Bank Governor is to find a mechanism to push interest rates down as it is having a dire consequence on private business’ access funds to expand their operation.This is in response to the cry of businesses who are reeling under the searing heat of high interest rates and the generally high cost of doing business.
This call on the BOG is not the first time. However, this seem to be a call which should rather be to the government. This has received a push back from experts and analysts who have said that both the banks and the regulator cannot do much about the high lending rate situation in Ghana. As part of measures to curb high lending rates, the regulator has been advised not to consider capping of interest rates. Adding to those calls is Frank Adu Jnr, outgoing MD of Cal Bank. He advised that capping interest rates could push rates to abnormal levels. From a political perspective, you can attempt, but you will pay the price.. We can attempt to do it…as they did in Kenya and see what happens.
He added that such a move would throw the economy into serious challenges. ‘If interest rates are high, it is not the doing of banks. Banks do not manage an economy. Interest rates reflect the economy that you have created’, he said in a radio interview.
Ghana Talks Business analysts believe that interest rate is a symptom and not a cause. It is the economy which determines the interest rate dynamics. Of course, there is room for some controls like what the Monetary Policy Committee (MPC) does.
There are situations where government officials hound banks to support the agric sector but the poor state of the roads do not allow farm produce to be transported to the market to be sold. The farmer eventually defaults because he/she could not raise enough revenue for their labour, moreso to service a loan. The Cedi’s weakness against the dollar hikes up inflation and creates extra burden for banks in terms of increased operational costs and general cost of doing business.
The Credit referencing system, supposed to manage borrower risk, is not working well because banks are not fully complying with the data submission requirements. This is a regulatory issue.
When government and regulators work efficiently put some of these issues at rest, it will be enough to call on the banks themselves to reduce lending rates for which Ghana’s rates remain one of the highest in Africa.
A perfect example is the situation where banks have now thrown their weight behind smallholder farmers to support them with GHS50 Million due to the warehousing receipt system borne out of the Ghana Commodity Exchange (GCX). Government created the exchange last year to facilitate commodity trading and that has brought attraction to the banks because there is now a way to secure lending.
It government creates the enabling environment, Bank of Ghana would be more empowered to ‘do something’ about Ghana’s relatively high lending rates which is an albatross for private businesses.