Figures from the Bank of Ghana (BoG) indicate that government Treasury Bills and Bonds are paying higher returns to investors as compared to what the commercial banks are offering as at March 2020.
Logically, commercial banks must offer higher returns on investments than the returns on government securities because they (the banks) have a higher risk. This is drawn from the simple investment rule of higher risk, paying higher return, and vice versa.
However, the latest Statistical Bulletin for March 2020 published by the BoG shows a trend where government, which has lower risk, is rather paying more in terms of interest rates to the investor.
For instance, in the bulletin, while government is paying an interest rate equivalent of 14.73 percent for a 91-day Treasury bill to investors, the commercial banks are giving 11.50 percent returns to investors for the same investment product.
Again, for a 182 –day Treasury bill, government is giving interest rate equivalent of 15.17 percent against the 10.50 percent that the commercial banks are offering. Similarly, while the commercial banks are giving 14.70 percent on a 12-month Treasury bill, government is offering 17.74 interest rate equivalent.
Also, the 5-year Government of Ghana bond paid the highest return to investors for March 2020 at a rate of 21.70 percent, and the list goes on and on.
But what does this trend of government out-paying the commercial banks for cash from the public mean to the banking sector?
An investment Analyst, Mr Yaw Antwi, in an interaction with the Ghana Talks Business on Tuesday, May 19, 2020, says there could only be one reason. It is that government is in dire need of money, hence why it is borrowing from the public at such high rates.
“If we are going strictly by the terms of investment, the one who has lower risk, in this case the government, should rather be giving lower rates. So if you have GH₵1,000 and let just say GCB or Access Bank is giving you 15 percent per annum, government should be giving something me like 12 percent.
“So, I think government is in need of money and that is why it is borrowing, competing and even out competing the banks”, he explained.
According to Mr Antwi, the situation, as depicted by the figures in the statistical bulletin, could mean a number of things for the banking sector.
First, he says the banks could be starved of cash because investors will channel all their monies into buying treasury bills and bonds which are attracting higher rates in spite of having lower risk.
Secondly, he said, it could also mean that the banks do not need money from the public because they have enough liquidity now due to the recapitalization of the financial institutions.
“So the advantage in this for the banks is that they won’t go to the market to take people’s money and then pay interest on them which will be a cost to the banks”, he said.
“That is why some of these banks are giving low rates because they are not so desperate for money from the public”, he stated.
“So what this means is that the money that should have come to the banks for them to work with, the money will go to the government. In effect the government is competing with the banks for liquidity, but the advantage for the banks is that they are also not incurring any cost in paying interest to the public”, he added.
This, Mr Antwi further added, is not good for the private sector in the long run because the money that the banks have is expensive, adding that it is also one of the reasons why local lending rates are high.
By Salifu B.B. Moro
