The business community has started mounting pressure on commercial banks to reduce their interest rate to enable them to have cheaper sources of funds to enhance their operations.
The pressure comes in the wake of the reduction in the Bank of ghana policy rate from 22.5 per cent to 21 per cent and the relative improvements in some major macroeconomic indicators.
For instance, the year-on-year inflation rate, as measured by the Consumer Price Index (CPI), stood at 12.1 per cent in June 2017 was down by 0.5 percentage points from the 12.6 per cent recorded in
May 2017. This rate of inflation for June is the percentage change in the CPI over the 12-month period from June 2016 to June 2017.
Furthermore, Treasury bill rate has consistently dropped from the beginning of the year as a result of a reduction in the government’s appetite for domestic borrowing. The 91-day Treasury bill rate used by the banks to determine their lending rates also eased by 417 basis points from January to 12.6 per cent on July 21.
From the beginning of the year to June 2017, the cedi recorded a depreciation of 3.7 per cent against the US dollar, compared with a depreciation of 3.3 per cent reported in June 2016.
Fortunately, the local currency continues to hold its own with analysts predicting the trend to continue for a long time.
With these positives, the universal banks are supposed to react to these macroeconomic indicators to drop their interest rates, a move which is expected to bring some relief to their customers.
However, the banks, which used to complain about the impact of worsening macroeconomic conditions on their pricing of loans, have suddenly shifted the goalpost by mentioning other factors, including cost of funds, as the major reasons they are unable to immediately drop the rates as expected.
Based on these among other things, the businesses associations have, prevailed on the Bank of Ghana (BoG) to direct the commercial banks to adjust their rates in accordance with the decline in the policy rate and other favourable macroeconomic indicators.
The President of the Ghana National Chamber of Commerce and Industry (GNCCI), Nana Appiagyei Dankawoso I, in his address at the 41st annual general meeting (AGM) of the chamber, said a reduction in the interest rates would enable the private sector to access affordable credit in order to expand, employ more people and generally contribute to the overall economic growth of the country.
He said it was welcoming to see a continuous reduction in the monetary policy rate and Treasury bill rate on the back of declining inflation rate.
“We are calling on the banks to respond accordingly by reducing their interest rate in the wake of falling monetary policy rate and Treasury bill rate.”
Nana Dankawoso observed that the developments within the macroeconomy were sending positive signals to the business community and commended the government for its economic policy direction which had culminated in the relative stability within the economy.
PEF takes stance
The Chief Executive Officer (CEO) of the Private Enterprise Federation (PEF), Nana Osei- Bonsu, told the GRAPHIC BUSINESS after the GNCC AGM that the central bank must take deliberate steps to change the formula by which commercial banks calculate their interest rates.
He said until the formula for calculating interest rate has been adjusted, it would take some time for the cut in policy rate to impact directly on interest rates in the country.
That, the CEO explained, was because the policy rate did not have a direct relationship with the commercial banks’ base rate, adding that “In Ghana, the banks’ base rate is based on a formula of which the policy rate is one component.”
Mr Osei-Bonsu said “in other jurisdictions, the Federal fund rate has a direct correlation with the prime rate that the banks charge.
Therefore, when you have a Federal Reserve cut its rates, it has a direct correspondent reduction in the commercial banks’ interest rate but this is not the case in our situation.”
For this reason, he said, it would take some time for the commercial banks to reduce their interest rate to help the private sector heave a sigh of relief.
He charged commercial banks not to penalise the private sector for their inability to reduce their cost of operations in the country.
“If the banks have allowed their cost of operations to increase, they should not penalize the individual businesses to recoup that investment because they have the technical expertise to address that challenge,” he said.
He observed that “If the costs of operations of the commercial banks are high, it is because they allowed it to be high: If their lending portfolio is nonperforming, it is because they gave loans to the wrong people.”